11/02/2022 – This Week in Gold

Price Movements

Gold gained over 1% in last week’s trading as it managed close the week above $1,800 which was a bullish sign. Gold is now also on track for another week of similar gains as the price is currently trending higher. Gold opened the week at $1,809, which turned out to be the weekly low, and the price has been gradually gaining momentum throughout the course of the week. Trading volumes were high on Thursday afternoon which helped push gold prices to February’s high of $1,841. Similar to trading during the end of last month, gold struggled as it approached this $1,840-$1,850 level of resistance. Gold then sold-off into Thursday evening when it was met with some selling-pressure as it failed to hold above $1,840. Despite this, gold is currently on track to close out this week’s trading in the green once again, up 1%.

Silver is also on course to notch a 1% weekly gain as it mimics gold’s upward momentum. Silver started the week at $22.57 and is currently trading just under $23 per ounce. The bullish case for silver would be to close the week out trading above $23.

CPI January 2022

Inflation is one of the key economic indicators and The Consumer Prices Index (CPI) is the main measure of inflation. Inflation is watched closely by consumers, policy makers and investors alike and can have a significant impact on the price of gold as inflation and a declining dollar typically results in rising gold prices. Hence why all eyes were on the latest inflation data released on Thursday afternoon by the U.S. Bureau of Labor Statistics. It was reported that the consumer price index for January, which measures the costs of dozens of everyday consumer goods, rose 0.6% which totals a rise of 7.5% on an annual basis. Once again, these results came in higher than Wall Street estimates and marked the biggest inflation boom since February 1982. Consumer prices account for a majority of overall inflation.

Many expected gold to get a large boost as the news broke seeing the yellow metal is a natural hedge against inflation. However, this wasn’t really the case as gold slipped during trading on Thursday evening. The reason may be because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate. Consumer prices surged more than expected over the past 12 months, indicating a worsening outlook for inflation and cementing the likelihood of substantial interest rate hikes this year. This has traders being more aggressive in betting on multiple rates hikes this year. Goldman Sachs recently announced that it expects seven 25 basis point interest rate rises from the U.S. Federal Reserve during 2022, up from its previous forecast of five given the latest CPI figures. This has some traders betting against gold as they foresee the FED acting sooner rather than later by hiking rates and in turn increase the opportunity cost of holding a non-interesting bearing asset like gold.

Ultimately it could be good news for gold if the FED don’t act as quickly and as frequent as expected and fails to keep inflation under control over the longer term. There is the possibility that these future rate hikes may not be enough to bring inflation back down to 2% target. What happens if rates go up more than expected, but inflation doesn’t come down? No matter what the outcome, physical gold offers a great way for investors to diversify their portfolio by sheltering themselves from currency, inflation and other unforeseen geopolitical risks.