Commodities Corner: Why surging U.S. inflation has gold bulls looking for record highs
Gold prices rallied Wednesday, and record prices may not be far out of reach, some analysts said Wednesday, as investors scramble for cash alternatives in response to data showing U.S. inflation running the hottest in more than three decades.
“Inflation is growing red hot and the transitory theme is falling apart,” said Peter Spina, president and chief executive officer at GoldSeek.com. Federal Reserve officials, including Vice Chairman Richard Clarida on Monday, have said a big spike in inflation was largely “transitory.”
U.S. government data on Wednesday revealed that the consumer-price index jumped 0.9% last month, topping the 0.6% rise forecast by economists polled by The Wall Street Journal. The pace of inflation over the past year has climbed to 6.2%, the highest rate since November 1990.
“Managing expectations was once the Fed’s most powerful tool, but now they are losing control of the narrative as ongoing price rises really start to stock the perception [and] awaken the market, Spina told MarketWatch. “Real yields are falling further into negative territory and gold is gaining buying interest.”
Read: Broadening U.S. inflation, now at 31-year high, has bond market considering greater chances of earlier interest rate hikes again
“Strong inflation will drive buyers back into gold, joining the strong buying we are witnessing in Asia and elsewhere. The fundamentals are very bullish for gold,” he said.
On Wednesday, December gold
the most actively traded contract, climbed $23.60, or 1.3%, to $1,854.40 an ounce on Comex, poised for its highest settlement since mid-June, FactSet data show.
““The worst U.S. inflation in three decades means the worst ever loss of purchasing power for cash savers.””
— Adrian Ash, BullionVault
“It’s nice to see that gold is once again providing a valuable role in offsetting inflation and providing an alternative to financial markets,” said Peter Grosskopf, chief executive offer at Sprott, told MarketWatch.
U.S. benchmark stock indexes declined modestly Wednesday following the hotter-than-expected consumer inflation reading. The Dow Jones Industrial Average
was down around 90 points, or 0.2%, while the S&P 500
fell 0.3% and the Nasdaq Composite
edged down 0.7%.
Gold may “resume its march to record prices,” while the effects of the Fed’s tapering of asset purchases begin to show themselves, Grosskopf said.
Futures prices marked a record settlement of $2,069.40 in August 2020.
“The worst U.S. inflation in three decades means the worst ever loss of purchasing power for cash savers,” said Adrian Ash, director of research at BullionVault, adding that “bitcoin has jumped for the same reason.”
“Savers and traders alike are looking for alternatives to cash,” said Ash.
Silver may also benefit as the U.S. central bank struggles to control inflation. The December contract
traded up by 63.7 cents, or 2.6%, to $24.955 an ounce Wednesday.
“Precious metal investors see holding gold and silver as an insurance policy for the possibility that the FOMC loses the ability to control inflation, and the risks that these 30-year high inflation rates remain for much longer than expected,” said Chris Gaffney, president of World Markets at TIAA Bank.
Fed Chairman Jerome Powell has continued to signal that a liftoff in interest rates won’t occur until after the bond buying is over, but how long after, questioned Gaffney. The Fed will “remain patient” because the risks associated with “being too aggressive on rates far outweighs the risks associated with letting the U.S. economy run hot,” said Gaffney.