By Myra P. Saefong and Mark DeCambre
Gold futures settled with a loss on Thursday, on the heels of a two-session climb, as investors took a step back from buying that has been supported by concerns over a rise in inflation.
“The inflation bug has been spreading with the growing problems with shortages and some big moves in commodities and energy prices,” Peter Spina, president and chief executive officer at GoldSeek.com, told MarketWatch. “The cost of free money is inflation and the market is now growingly fearful of inflation and less so of a taper.”
Gold, and to a lesser extent silver, is seen as a hedge against rising inflation around the world, a factor that has allowed bullion to gain some traction higher despite growing concerns about pricing pressures.
The Federal Reserve’s monetary policy meeting in early November is “unlikely to result in a tapering, but their strong language about tapering may be a headwind for gold,” Spina said. That’s what’s likely to dominate trading in the coming week, he said.
Meanwhile, December silver /zigman2/quotes/210319421/delayed SIZ21 +0.76% /zigman2/quotes/210315219/delayed SI00 +1.12% declined by 27 cents, or 1.1%, at $24.17 an ounce, eroding a 2.4% gain in the previous session.
Gold “appears stuck in ‘no man’s land’, battling rising yields on the short-end of the curve and as [Federal Reserve] members try to push back rate hike expectations,” said Edward Moya, senior market analyst at Oanda. However, the precious metal “should see some safe-haven flows as the short-term risks to the global economic recovery are growing as Evergrande contagion spreads,” he said, referring to the Chinese property giant’s debt crisis.
Inflation is not letting up, and investors “bracing for a mini taper tantrum”, should also boost the safe-haven flows for the metal, he said.
A persistent rise in Treasury yields, with the 10-year Treasury note BX:TMUBMUSD10Y around its highest yield since May and a rise in the U.S. dollar Thursday, weighed on bullion prices.
The moves for both followed data showing new U.S. jobless claims dropped by 6,000 to 290,000 in the seven days ended Oct. 16. Separately, the Philadelphia Fed said Thursday its gauge of regional business activity fell to 23.8 in October from 30.7 in the prior month.
Still, the dollar, as measured by the ICE U.S. Dollar index /zigman2/quotes/210598269/delayed DXY -0.0052% traded lower for the week.
Weakness in the dollar is helping to give gold prices some buying interest at the current levels, with “silver’s rebound also energizing gold’s appetite,” said Spina. He expects gold to rally into the lower $1,800’s until the FOMC meeting.
Week to date, gold futures trade around 0.7% higher, while silver has gained more than 3%.
Gold, and assets considered by some to be digital gold, such as bitcoin /zigman2/quotes/31322028/realtime BTCUSD +2.05% , the world’s most prominent cryptocurrency, have been climbing.
“Under these conditions, hedges against long-term inflation in cryptocurrencies and precious metals are regaining their shine. In addition, the latter have sagged substantially in more than a year of corrective trend,” wrote Alex Kuptsikevich, senior financial analyst at FxPro, in a research note.
Despite Thursday’s pause, Kuptsikevich sees further upside for precious metals.
“In terms of tech analysis, investors should pay attention to the fact that the bulls have managed to push metals and mining companies above their 50-day moving averages. This is the first sign of a break in the downtrend,” the analyst wrote.
Members of the Fed have stated that they believe inflation pressures will be short-lived but some investors are worried that policy makers could be underestimating the severity and duration of inflation in the aftermath of COVID-19.
“Amongst the fundamental factors, a divergence between inflation expectations and the actions of the key central banks could provide support to the commodity markets,” the FxPro analyst wrote. “Signs that central bankers are not keeping pace will support a recovery rally in gold and help mining companies to increase their revenues and profits.”
Among other metals traded on Comex, December copper /zigman2/quotes/210059552/delayed HGZ21 -0.51% fell 3.7% to $4.559 a pound. January platinum /zigman2/quotes/222209103/delayed PLF22 -0.62% shed nearly 0.3% to $1,049.70 an ounce, while December palladium /zigman2/quotes/221433715/delayed PAZ21 +1.17% settled at $2,018.10 an ounce, down 3.1%.