Gold Steady as Investors Weigh Fed Comments, Inflation Risks

011, Apr 2022

(Bloomberg) Gold was steady as traders assessed comments from the Federal Reserve on its monetary-policy tightening trajectory ahead of the release of U.S. inflation data later Tuesday. 

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Bullion is being buoyed by demand for inflation hedges and haven assets amid Russia’s war in Ukraine, but the prospects of higher interest rates are capping gains on the non-interest bearing metal. Surging bond yields and the stronger dollar, both trends that reflect expectations of faster Fed policy tightening, are also weighing on gold. 

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Charles Evans, the Fed Bank of Chicago president who has long been one of the U.S. central bank’s more dovish policy makers, said an accelerated pace of interest-rate increases to combat inflation is worth debating. Meanwhile, Fed Governor Christopher Waller said it’s doing all it can to avoid “collateral damage” from raising interest rates, a “brute-force tool” that can act as a “hammer” on the economy. 

Consumer prices probably rose 8.4% last month from a year ago, according to a Bloomberg survey of economists.

While that could mark a peak, concerns remain that inflation will remain both elevated and persistent. Investors are still seeking a store of value with holdings in bullion-backed exchange-traded funds near the highest level in more than a year, according to initial data compiled by Bloomberg.

“Gold should continue to see strong inflows as uncertainty over inflation and growth will remain elevated over the coming months due to geopolitics and differing views on how aggressive the Fed will need to be with tightening of monetary policy during the summer months,” said Edward Moya, a senior market analyst at Oanda Corp.

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Spot gold was little changed at $1,952.93 an ounce at 9:10 a.m. in Singapore, after rising 0.3% Monday. The Bloomberg Dollar Spot Index rose 0.1% and is up for a ninth straight day, the longest run of gains since 2020. Palladium and platinum advanced, while silver fell.

©2022 Bloomberg L.P.

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