By Barani Krishnan
Investing.com - It’s not progressing much from the weight of the soaring dollar and U.S. yields. But the fact it hasn’t collapsed either is giving gold bulls hope that the market still has the chance to get to $1,900 levels.
Gold has been stuck in a range of around $1,815 to $1,870 over the past week as buyers sought the yellow metal more than ever since the end of June as a hedge against inflation, which is running at more than 30-year highs in the United States.
In Monday’s session, U.S. gold futures’ most active contract, December, settled down $1.90, or 0.1%, at $1,866.50 an ounce. It peaked earlier in the day at $1,872.95 — its highest since June 15.
Gold futures settled up for a second straight week last week, notching a win of 2.8% after the previous week’s gain of 1.8%. It also rose for a seventh straight day, its longest stretch in the green from the end of June to the first week of July.
“It's been quite a run for gold, which has soared as inflation indicators have continued to rise and become more widespread,” said Craig Erlam, analyst at online trading platform OANDA. “This, in turn, has forced traders to price in more rate hikes even as central banks push back against it.”
Gold’s run-up was heightened by a Labor Department report last week that the U.S. Consumer Price Index, which represents a basket of products ranging from gasoline and health care to groceries and rents, rose 6.2% during the year to October. It was the fastest growth of the so-called CPI since November 1990, an acceleration driven mostly by pump prices of fuel running at seven-year highs.
Bullion has always been touted as an inflation hedge. But it wasn’t able to live up to that billing earlier this year as incessant speculation that the Federal Reserve will be forced in a faster-than-expected rate hike sent Treasury yields and the dollar rallying at bullion’s expense.
That trend abated somewhat after Fed Chair Jay Powell assured earlier this month that the central bank will be patient with any rate hike that will only come in the later half of the next year.
But with the U.S. 10-year Treasury note, a key indicator of real interest rates, hitting a three-week high of 1.62% on Monday and the Dollar Index reaching a 10-day peak of 95.46, fresh speculation emerged that the Fed may have to dump its “patient-for-now” stance over inflation and raise rates faster than its planned timeline of between July and December 2022.
Still, gold did not crumble.
“Gold has become popular despite higher yields and a stronger dollar, as inflation-adjusted yields remain at their lows,” Erlam of OANDA noted. “It's also been seeing some love for its role as an inflation hedge, as we saw in the aftermath of the US CPI data last week. If policymakers continue to stick to the transitory line, gold could continue to see support.”
Gold last traded at $1,900 levels in June.
Prior to that, it hit record highs above $2,100 in August 2020 after rallying from below $1,500 in March, during the height of the coronavirus pandemic.