Gold aims for one-month high as dollar, bond yields fall after inflation report

Gold futures headed sharply higher on Wednesday, with prices poised for their highest finish in a month as the U.S. dollar and bond yields weakened following a report on inflation in September.

Investors also prepared for an account of the Federal Reserve’s Sept. 21-22 meeting later in the day.

The U.S. consumer price report showed inflation pressures continuing to build and “gold, as a hard currency, has historically been seen by investors as a hedge against inflation,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

“As signs that inflation is likely not transient have emerged over the last few days between commodity price rallies…increasing wage inflation and price inflation, gold’s role as an inflation hedge has moved back to the forefront,” he told MarketWatch. Weakness in the U.S. dollar also helped to put a tailwind behind gold, Cieszynski said.

The September U.S. consumer-price index reading rose 0.4%, versus expectations for 0.3% on the month. Excluding the volatile food and energy components, the CPI climbed 0.2% after edging up 0.1% in August, the smallest gain in six months.

In the 12 months through September, the CPI increased 5.4% after advancing 5.3% year-over-year in August and annualized core CPI rose 4.0% after increasing 4.0% in August.

“The acceleration in total consumer inflation in this CPI report makes Fed action to curtail inflation both imperative and imminent,” said Jason Schenker, president of Prestige Economics, in emailed commentary. “We continue to believe that the Fed is likely to announce a planned reduction” in quantitative easing (QE) on Nov. 3. He also said he expects the Fed to raise interest rates next year.

QE tends to help support gold prices, but the Fed has been widely expected to announce next month that it will begin tapering its monthly bond purchases.

Against that backdrop, December gold



rose $35.20, or 2%, at $1,794.50 an ounce, following a 0.2% gain on Tuesday. Prices for the most-active contract were on track for their highest settlement since mid-September, FactSet data show.

Meanwhile, silver for December delivery


traded 68.1 cents, or 3%, to $23.195 an ounce, following a 0.7% decline a day ago. Prices were also on track for their highest finish since Sept. 15.

“Gold has risen mainly due to expectations that inflation will continue to rise in the fourth quarter,” said Chintan Karnani, director of research at Insignia Consultants.

“Central banks’ tolerance on hyper inflation will be tested this quarter,” he said, adding that there was a technical breakout on $1,781 on gold, accompanied by a short covering.

Gold has been mostly registering small losses and trading in a relatively tight range between $1,750 and around $1,770 an ounce. Gold bulls have noted that the precious metal has managed to maintain relative strength despite a stronger U.S. dollar and a steady climb in benchmark Treasury yields, which can compete against bullion for those investors seeking a perceived haven in uncertain times.

“In the commodity complex, gold has displayed some remarkable resilience in recent sessions, absorbing a stronger dollar and the spike in yields without much trouble,” wrote Marios Hadjikyriacos, senior investment analyst at XM, in a daily note.

In Wednesday dealings, however, the dollar, as gauged by the ICE U.S. Dollar index

was down 0.3% at 94.211 and the yield on the 10-year Treasury note

stood at 1.557%, down from 1.579% on Tuesday.

Meanwhile, the Fed’s minutes of the September meeting are set to be released at 2 p.m. ET, a half an hour after gold futures settle on Comex.

The release of the Fed minutes will be key for Thursday’s trading, said Karnani.

However, there aren’t likely to be surprises in the report, as the Fed’s No. 2 Richard Clarida signaled earlier this week that the economic recovery from COVID-19 had essentially met the criteria necessary to announce a reduction of monthly asset-purchases of Treasurys and mortgage-backed securities that have been in force since June of 2020.

In other Comex trading, December copper

tacked on 3.4% to $4.472 a pound. January platinum

rose 1% to $1,021.40 an ounce and December palladium

traded at $2,109 an ounce, up 3%.

“There is a large rally in copper and industrial metals…on supply squeeze concerns,” said Karnani.

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