By Barani Krishnan
Investing.com - Gold had its best week since December, with U.S. inflation risks and a reintroduction of political risk hedging helping set the yellow metal on a potential return to $1,800 pricing.
Benchmark gold futures on New York’s Comex settled up $13.40, or 0.8%, at $1,780.20 an ounce. It earlier scaled a seven-week high of $1,784.55, making its first return to $1,780 pricing since Feb. 26.
The spot price of gold wasn’t far from futures, trading up $13.79, or 0.8%, at $1,777.70 by 3:12 PM ET (19:12 GMT), after a peak at $1,783.83. Moves in spot gold are integral to fund managers, who sometimes rely more on it than futures for direction.
Gold’s resurgence this week came as U.S. bond yields plunged amid a hike in consumer prices that reasserted the yellow metal’s diminished role as a hedge against inflation.
Sweeping sanctions imposed on Russia by the United States on Thursday also brought gold back — in the eyes of some, at least — as a protection against political risk.
U.S. bond yields, measured by the 10-year Treasury note, hovered at 1.58% on Friday, markedly lower from a 14-month high of 1.77% on March 30.
“It would appear that the bond market is finally buying into the Fed’s low-for longer verse which would be supportive of non-yielding gold,” said Sophie Griffiths, research head for the U.K. and EMEA at online broker OANDA.
Gold has been throttled in recent months by bond yields and the dollar that often surged on the argument that U.S. economic recovery from the coronavirus pandemic could exceed expectations, as the Federal Reserve kept interest rates at near zero.
Griffiths noted that geopolitics were also “back with a bang” this week amid the heightening showdown between world powers America and Russia, driving investors toward safe havens such as gold.
Adding to gold’s strength was a weaker dollar, which typically boosted the yellow metal. The Dollar Index, which pits the greenback against the euro and five other major currencies, weakened on Friday to 91.56 versus Thursday’s settlement of 91.62.
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.
Typically, stimulus measures lead to dollar debasement and inflation that sends gold rallying as an inflation hedge. But logic-suspending selloffs instead took place in gold over the past six months, with some Wall Street banks lending inane commentary to support these.