Gold prices have hit their highest level since January as concerns about inflation continue to grow.
The precious metal breached $1,900 per ounce early on Wednesday, though it edged marginally lower again as the session wore on. By 1400 BST, it was trading at around $1,898.
Prices are being supported by the prospect of higher inflation as well as a weaker dollar. Gold, a safe-haven asset, is traditionally seen as a hedge to high inflation.
Joshua Mahony, senior market analyst at IG, said: “Rising inflation and falling treasury yields continue to benefit precious metals.
“The experiences of 2008 highlight how the prolonged growth in the Federal Reserve’s balance sheet should allow for a drawn-out gold bull market well after the original economic collapse. However, with the Fed having acted at greater speed and size in comparison to 2008, the question for gold bulls is just how long we will see the Federal Open Market Committee maintain their accommodative stance.”
Naeem Aslam, chief market analyst at Avatrade, said: “Yesterday we saw some big improvement in the US consumer confidence level, and most of the economic readings have been encouraging this week. But traders continue to believe that inflation remains the single biggest threat, and there is no better hedge against inflation than gold.
“Gold prices are now overbought, and we could see some pullback soon. One of the catalysts that trigger a retracement could be some sort of acknowledgement among Fed members that they are close to debate the process of pulling back some of the coronavirus-related support. Any such comments could bring some strength to the dollar index, pushing the gold prices lower.”
Ipek Ozkardeskaya, senior analyst at Swissquote, said: “The higher inflation set up is a boost for gold, which is finally drilling above the $1,900 per ounce resistance. Soft US yields continue giving a decent support to the gold bulls, as inflation worries and perhaps the recent crypto rout drove some more capital into the yellow metal.
“But there are signs that a downside correction may be just around the corner, as the RSI indictor now points to overbought market conditions. The question is whether investors would pile in during the future price pullbacks, targeting a further extension of gains towards the $,2000 handle. US yields will perhaps play an important role in the medium-term gold appetite.”
