By Myra P. Saefong and Mark DeCambre
Gold futures climbed Friday, but bullion ended below the day’s best levels after remarks from Federal Reserve Chairman Jerome Powell raised the likelihood that the central bank will soon start to slow, or taper, its monthly bond purchases.
The comments offset some of gold’s earlier support from concerns that rising inflation in the aftermath of COVID-19 may erode purchasing power.
Powell said Friday that elevated U.S. inflation readings are likely to last into next year and the central bank is alert to the risk that consumers start to expect higher inflation. He also said it was “time to taper” the Fed’s $120 billion in monthly asset purchases. The central bank’s policymakers hold their next meeting on Nov. 2 to 3.
Gold gave up much of its early Friday gains after Powell’s remarks on tapering its bond purchases, Chintan Karnani, director of research at Insignia Consultants, told MarketWatch.
Powell also said inflation will be longer than previously expected and that monetary tools will be used if inflation rises for longer than expected. He also said the U.S. labor market might continue to improve so it reaches “maximum employment” next year and if that happens, it would remove what likely is the last major hurdle for any interest rate hikes.
Traders were “expecting an indication” of an interest rate hike after tapering, said Karnani. Gold fell from its highs “on a combination of weekend profit taking and technical selling” after the Fed chairman’s speech.
Still, the “gold price is being supported by inflation concerns,” Karnani said, adding that the Russian central bank has raised interest rates to counter inflation.
He pointed out that in the next two weeks, key central bank meetings include the Bank of England, European Central Bank, the Bank of Japan and the U.S. Fed.
Karnani said he does not expect any surprises from the Fed as “everything has been clarified,” given Powell’s speech on Friday.
December gold /zigman2/quotes/210039437/delayed GCZ21 +0.80% /zigman2/quotes/210034565/delayed GC00 +0.80% rose $14.40, or 0.8%, to settle at $1,796.30 an ounce, after trading as high as $1,815.50 during the trading session. For the week, however, gold was up 1.6% and notched a fourth weekly gain in five weeks, according to Dow Jones Market Data. That was the sharpest weekly rise for a most-active contract since the period ended Aug. 27.
December silver /zigman2/quotes/210319421/delayed SIZ21 +0.42% /zigman2/quotes/210315219/delayed SI00 +0.42% ended 28 cents, or almost 1.2%, higher at $24.449 an ounce, also down from the session’s high of $24.92. For the week, silver was up 4.7%, which represents its best weekly gain since the weekly stretch ended May 7.
Gold and silver are “supported by increasing worries about problematic price inflation and by a lower U.S. dollar index to end the trading week,” said Jim Wyckoff, senior analyst at Kitco.com, in a daily note. Gold is often perceived as a hedge against rising inflation.
The markets for both gold and silver have “finally awakened to the fact global inflation is rising and probably won’t be just transitory,” said Wyckoff. “Gold prices have been trending higher since late-September and silver prices this week hit a six-week high.”
“History shows hard assets like the precious metals become more in favor as an inflation hedge when consumer and producer prices are rising,” he said.
However, gold’s value has been somewhat range bound since July as a result of concerns about global growth and inflation, which are bullish for the yellow metal, and rising yields, which can undercut the appeal of non-yielding precious metals.
On Friday, Treasury yields moved lower, with 10-year Treasury note yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -5.04% at 1.659%, down from 1.674% on Thursday and the ICE U.S. Dollar index /zigman2/quotes/210598269/delayed DXY -0.66% fell by 0.1%.
Among other Comex-traded metals. December copper /zigman2/quotes/210059552/delayed HGZ21 -0.23% edged down by 1.3% to $4.498 a pound, suffering a weekly loss of 4.9%.
January platinum /zigman2/quotes/222209103/delayed PLF22 -2.45% lost 0.2% to $1,052.10 an ounce , with prices settling 0.6% lower for the week, while December palladium fell 0.9% to $2,035.60 an ounce, for a weekly loss of 2%.