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(Kitco News) – Analysts are still keeping a close eye on the $ 1,850 level of gold as inflationary pressure heats up. Still, uncertain economic trends have forced the Federal Reserve to remain patient and maintain a loose monetary policy.
Analysts say gold is in a hot spot as many investors look to hedge against inflation. The renewed gold interest came after the annual US CPI rose 4.2 percent last month, the most significant increase in 13 years. This year, the biggest increase in history.
Bart Melek, head of commodity strategy at TD Securities, said that although inflation was rising, But it is too early to say if it is more permanent or temporary, as the Federal Reserve predicted.
Melek added that TD is in the camp where inflation will be temporary. He explained that while commodity prices continued to rise. But there is sufficient reserve capacity in the world economy to support this new bull market cycle.
“We think the Federal Reserve will be quite comfortable looking at the latest inflation figures,” he said.
With inflation soaring and the Federal Reserve wanted to stick to monetary policy, Melek said it was only a matter of time before gold prices surged above $ 1,850 an ounce. He added that if that price level broke through the main target, the next would be a January high of over $ 1,900.
Sean Lusk, co-director of trade hedging at Walsh Trading, said he tends to go into gold because inflation is “real”.
He added that while there was a threat that rising inflation would drive higher bond yields as fixed income traders began to expect the Federal Reserve to raise interest rates.
However, he added that the drop in gold prices due to higher bond yields is an opportunity to buy.
“A lot of uncertainty is going on and that’s why the Fed will be reluctant to tighten its monetary policy and that will be good for gold,” he said. But there is no doubt that they will be behind the curve, the real interest rate will remain in negative territory and that is a good environment for gold. ‘
Commerzbank precious metals analyst Carsten Fritsch said in a note on Friday that rising bond yields hit 1.7 percent, bringing gold back from a break of $ 1,850 an ounce.
“Although US bond yields climbed as high as 1.7%. [Thursday]They are still 2.5 percent below current inflation, although the latter has fallen again during the year. But the real interest rate remained significantly negative. This is because of the continued extraordinary expansion of monetary policy, it imposes tightening restrictions on rising bond yields, ”he said.
Fritsch said he expects to see new speculation interest in gold as prices get a “green light” higher.
Although inflation is bullish for gold. But Lusk said the precious metal next week should attract new safe demand as geopolitical tensions continue to escalate with growing conflicts between Israel and the Palestinians in Gaza.
While the gold market is seeing new momentum in inflation, some analysts have noted that the precious metal is still facing some of the problems: increased competition from cryptocurrencies.
In an email to Kitco News, Mike McGlone, senior commodity analyst at Bloomberg Intelligence, described the $ 1,850 per ounce level as “Rounding errors,” he added, that the precious metal would have been higher if not for bitcoin.
McGlone added that with the highest all-time price of copper, gold should trade at around $ 2,300 an ounce.
“Gold has reached a tipping point in portfolios with Bitcoin,” he said. “Gold will be momentarily boring, as the excitement and upside potential is shifting to a new digital upstart: Bitcoin.”
Information to watch
As all analysts watch for inflation, investors will be keen to see what the Federal Reserve is eyeing, as the April payroll policy minutes will be published on Wednesday.
The market will receive additional US housing construction and sales data and preliminary production numbers.
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