Are The Recent Gold Gains Due To Inflation Worries?

“Gold prices rose about 1% on Monday, as a retreat in U.S. bond yields and persisting worries about inflation lifted the safe-haven asset ahead of major central bank meetings this week.

Spot gold was up 0.9% at $1,807.66 per ounce by 11:39 a.m. ET (1539 GMT). U.S. gold futures for December delivery gained 0.7% at $1,809.60 per ounce.

“The main reason for this rally is that yields backed off a little bit… but prices are still kind of range bound,” said Daniel Pavilonis, senior market strategist at RJO Futures.

“We have a lot going on this week in terms of earnings and data points. There may be a situation where inflation is going to impact earnings and the Federal Reserve is realizing that and will thus be forced to taper.”

U.S. benchmark 10-year Treasury yields fell to a session low of 1.6240% after hitting a five-month peak of 1.7% last week, reducing the opportunity cost of holding non-interest bearing bullion.

Gold eased off its September highs on Friday after U.S. Fed Chair Jerome Powell reiterated his view that high inflation will likely abate next year and said the U.S. central bank should begin reducing its asset purchases soon.

“Powell’s recent comments may have amplified concerns of inflation sticking around for longer, which is apparently further eroding support for team ‘transitory’ and fuelling a stronger bid for gold as an inflation hedge,” said Han Tan, chief market analyst at Exinity.

Investor focus now shifts to the Bank of Japan and European Central Bank meetings due on Thursday. The next U.S. Fed meet is due on Nov. 2-3.
While gold is often considered an inflation hedge, reduced stimulus and interest rate hikes push government bond yields up, raising the opportunity cost of holding bullion.

Elsewhere, silver gained 0.8% at $24.50 per ounce.

Platinum rose 1.7% to $1,057.95 per ounce. Palladium jumped 1.3% to $2,048.94 per ounce.”