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Gold Back Above $1,800 But Late to Inflation Party

CommoditiesMay 06, 2021 04:03PM ET
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(updates with settlement prices and outlook)

By Barani Krishnan

Investing.com - Gold finally recaptured its $1,800 an ounce berth on Thursday after a 10-week lapse.

But some analysts tracking the yellow metal were doubtful if it could retain the momentum given its relatively abysmal performance for this year. That the latest rally came on the back of sector rotations on Wall Street made some even more circumspect.

Gold has also been notably late in reflecting ramping concerns about U.S. inflation — when it should have been the first commodity to do so, given its long-standing role as a store of value.

Benchmark gold futures on New York’s Comex settled up $31.40, or 1.8%, at $1,815.70 an ounce. The session high was $1,818.25.

The spot price of gold was up $27.86, or 1.6%, to $1,814.60 by 3:00 PM ET (19:00 GMT), after a session peak at $1,818.09.

Investors sometimes decide on the direction for gold by looking at the spot price — which reflects bullion for prompt delivery — instead of the futures.

“I’m not convinced yet that we’re there with gold,” said Phillip Streible, chief market strategist at Blueline Futures in Chicago. “I need to see a few daily closings above the $1,800 level to be convinced that we can proceed to the $1,900 area and challenge the $2,000 highs of August.”

“If you want an inflation hedge, there are lots of other commodities now where you can get that, from copper to even ags like soybeans.”

Ole Hansen, head of commodities strategy at Saxo Bank, also said gold had more to prove.

“Buy stops from long-term shorts has yet to be challenged, so now comes the hard work of staying above,” Hansen said in a tweet. “Support (at) $1,795 with next upside levels of interest being $1,818 followed by $1,851.”

Sunil Kumar Dixit of S.K. Dixit Charting in Kolkata, India, said gold could go both ways. 

"After a much-awaited and coiled move, gold has surged past $1,800 and touched $1,818, which strengthens the case for the next immediate target of $1,829," said Dixit. "But any move below $1,805-$1,785 will be construed as a logical correction, and that could extend back down towards $1,735."

Since the year began, gold has faced continuous headwinds as the dollar and bond yields often surged on the argument that U.S. economic recovery from the pandemic could exceed expectations, leading to fears of spiralling inflation as the Federal Reserve kept interest rates at near zero.

The yield on the 10-year U.S. Treasury note was at 1.564 on Thursday, off the key 1.6% level.

The Dollar Index, which pits the greenback against the euro and five other major currencies, was at 90.985, below the key 91 level.

Gold had a scorching run in mid-2020 when it rose from March lows of under $1,500 to reach record highs of nearly $2,100 by August, responding to inflationary concerns sparked by the first U.S. fiscal relief of $3 trillion approved for the coronavirus pandemic.

Breakthroughs in vaccine development since November, along with optimism of economic recovery, however, forced gold to close 2020 trading at just below $1,900.

This year, the rut worsened as gold fell first to $1,800 levels in January, then collapsed to below $1,660 at one point in March.

Such weakness in gold is remarkable if considered from the perspective of the Covid-19 stimulus of $1.9 trillion passed by Congress in March, and the Biden administration’s plans for an additional infrastructure spending of $2.2 trillion.

A rash of US economic data, from inflation to consumer spending, homebuilding, house prices and employment, have exceeded forecasts lately, boosting hopes for faster-than-expected recovery from the coronavirus pandemic.

These have boosted prices of inflation-sensitive commodities like oil, lumber and even coffee.

But gold, supposedly the world’s No. 1 inflation-hedge and the “safe haven” everyone turns to in moments of financial and political trouble — has performed miserably for months on end.

Gold Back Above $1,800 But Late to Inflation Party
 

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Comments (19)
LORD John
LORD John May 06, 2021 11:08PM ET
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Gold is moving between long term selling levels . 1953 to 1804 and then, Next  possible levels  will be 1830 to 1561 . or 1873 to 1444
Casino Crypt
CasinoCrypt May 06, 2021 8:28PM ET
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I agree - never has the world seen so many issues at once - global warming, Trillions of printed cash, Covid, bad Brexit, Chip 'shortage ' ( actually the supply chain is broken)  and Taiwan tensions.   With all this going on Gold is on holiday. 20 years ago it would have been 20% higher after all these are factored.
Jack Drummond
Jack Drummond May 06, 2021 8:02PM ET
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Mr. Krishman, what is happening with the price being flat for over 10 hours now? Have the short manipulators been locked out of the trading floors? This event looks suspiciously like gold price reacting to inflation pressures, gaining it's rightful place, and then maintaining it's more true value. Today's trading is worth a screen grab. (What do the manipulators got up their sleeve? Did they orchestrate this chapter of temporal sanity- just to slam us down in a mondo price crash?)
Barani Krishnan
Barani Krishnan May 06, 2021 8:02PM ET
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Jack, thanks as always for your thoughtful insights and questions. I'm just as puzzled -- and wary -- as the people quoted in this story. Will be doing a longer piece tonight while awaiting some price action that I hope will come, Since post-settlement -- and its 9:15 PM ET as I write this -- it's just been dead.
Tubsy SkinntFinger
TubsSkinnyFinger May 06, 2021 5:05PM ET
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Barani Barani please come to my inflation party hahahah
Barani Krishnan
Barani Krishnan May 06, 2021 5:05PM ET
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Where have you been hiding, Tubs? Lost your tongue all this while?
Tubsy SkinntFinger
TubsSkinnyFinger May 06, 2021 5:05PM ET
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Getting old mate
Anasi Lindfors
Anasi Lindfors May 06, 2021 1:50PM ET
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Over sold and undervalued. We are not going back to normal
Tim Wasser
Tim Wasser May 06, 2021 12:41PM ET
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I give you my reason, I left a lot of value stocks wich got blown out of proportion and parked my my earnings in Gold. Since its not too volatile, from here it's a waiting game. I stayed in all my conservative blue chips tho
Jack Drummond
Jack Drummond May 06, 2021 12:41PM ET
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Tim, have you considered that the unreal market growth is IN the blue chips. If I was a betting man, (who here isn't?), I would plan for the blue chips to fall the earliest, farthest and the most irretrievably.
Tyrone Jackson
Tyrone Jackson May 06, 2021 12:39PM ET
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I ll take my chances with my kilos of gold. Price paid 32k now 57k . How is that for a inflation hedge? Let’s see what they will sell for in the future. Soybeans and lumber? Nice trades . Copper. All good paper trades. But having 10-20 % of your capital is just prudent
Jack Drummond
Jack Drummond May 06, 2021 12:39PM ET
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Damn right Tyrone.
Bogdan Gabriel Matasaru
Bogdan Gabriel Matasaru May 06, 2021 12:22PM ET
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the answer is in the article, it is a boom period, goold is a hedge, in an economic boom period gold is not rising, but if this boom period will prove fake then the gold will rise and the lumber, coper will tumble...
The GOAT
The_Goat May 06, 2021 12:12PM ET
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The gold party hasn't even begun since the big boys don't even know what's going to happen
Barani Krishnan
Barani Krishnan May 06, 2021 12:12PM ET
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Inflation party has.
Murali Brahmandam
Murali Brahmandam May 06, 2021 12:01PM ET
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Buy gold when sp 500 hits 4181. good luck with trading
Allatra Yiveh
AllatraYiveh May 06, 2021 12:01PM ET
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Gold: "I'M BACK!"
Murali Brahmandam
Murali Brahmandam May 06, 2021 11:59AM ET
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Final word on Gold: Headed to at least $1965 but speed will vary
Jack Drummond
Jack Drummond May 06, 2021 11:59AM ET
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Object may appear smaller as it is.
Samuel Mapang
Samuel Mapang May 06, 2021 11:50AM ET
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Gold is not Bitcoin. 1800 come Monday open. GL
Rishabh Gupta
Rishabh Gupta May 06, 2021 11:41AM ET
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Where it is heading , any clues?
Kevin McCarthy
Kevin McCarthy May 06, 2021 11:39AM ET
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Gold is up because it's undervalued and has amazing short squeeze potential... watch out for next squeeze. targeting 2300-2700 by end of next year.
Murali Brahmandam
Murali Brahmandam May 06, 2021 11:25AM ET
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Gold is buy in anticipation of big stocks drop .. safe haven reason. nothing else
Gopalakrishnan Vattakat
Gopalakrishnan Vattakat May 06, 2021 10:46AM ET
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No proper or valid reasins for the surge in price at this time. Not at all due to inflation in any case.
Doug Wildman
Doug Wildman May 06, 2021 10:46AM ET
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Can you explain the valuations of cryptocurrencies?
Barani Krishnan
Barani Krishnan May 06, 2021 10:46AM ET
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Gopalakrishnan, update coming.
Edward Chong
Edward Chong May 06, 2021 10:46AM ET
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there has never been a valid reason for any surge in anything. its all about longs and shorts.
Murali Brahmandam
Murali Brahmandam May 06, 2021 10:30AM ET
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Not because of inflation fears ... gold is up due to short covering and potential big drop in stocks
Narayan Gautam
Narayan Gautam May 06, 2021 10:30AM ET
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It will be drop or still going up?
Murali Brahmandam
Murali Brahmandam May 06, 2021 10:30AM ET
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Gold is buy for now
Barani Krishnan
Barani Krishnan May 06, 2021 10:30AM ET
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Murali, gold is probably the last commodity to price in inflation when it should have been the first. It's a joke actually. The question is whether this advance beyond $1,800 will hold. I'm updating the copy with more views. Yes, stocks are down and people have to put their money somewhere.
Gamer Turtle
GamerTurtle May 06, 2021 10:27AM ET
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it just moved up like $20+ at 9:30AM on the dot. lol. constantly reminding us the whole market is an online casino after all. whether or not it assets on the market moves per fundamental or speculation for the most part, a casino can move wherever big money push it to. it's one of those day where you can't even speculate few minutes before an economic data as there were nothing other than US market opened. lol
Barani Krishnan
Barani Krishnan May 06, 2021 10:27AM ET
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Gold is probably the last commodity to price in inflation now when it should have been the first. It's a joke actually. The question is whether this advance beyond $1,800 will hold. I'm updating the copy with more views.
 
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