Gold Hits New Highs Amidst Inflation Fears

Gold has been enjoying a strong run on the markets, and it looks to be heading towards a five-month peak. The price of gold was up to $1,868 per ounce at the start of the week which makes it the metal’s largest weekly gain since late spring.

The gold rush has come amidst concern about inflation data in the US and how liquidity could affect the Federal Reserve. As such, strategists have been suggesting that gold could reach $1,950 in the first quarter of 2022.

Gold has long been used as a hedge against the risk of inflation. Recent data has shown a rapid rise in US consumer prices while the biggest banks have been largely against any change in interest rates. As such, gold has become increasingly attractive to investors, especially as higher inflation is predicted for the next few months.

Much will depend on the policies introduced by the Federal Reserve. There is a widespread belief that the USD will strengthen and there will be the gradual introduction of higher interest rates. This could signal a downturn in the price of gold and other metals such as silver which have already witnessed a steadying in value.

Where can the price of gold go from here?

Many stock market analysts suggest that gold is just getting started in its impressive rate of growth. While bullion had just enjoyed its best week since May, it is just 2% away from breaking even on a year-to-date basis. Alongside the aforementioned hedge against inflation, there is also an increased demand in gold for jewellery, and the consumer demand powering this is set to continue for the foreseeable future thanks to upcoming festive seasons in India and China.

What’s most impressive is the way that gold reacted to the Federal Reserve’s decision to taper the pace of its asset purchases last week. Many investors were expecting the price of gold to fall, but there was actually a significant rally in the value of the asset.

All of which highlights how gold is being pegged as a safe investment amidst a period of relative uncertainty. With no real indication of how long the current inflationary pressure will last and concern about the ongoing supply chain crisis, there’s every chance that the demand for gold will continue well into the next quarter.

The inflationary pressures have largely arisen as the US recovers from the pandemic. Treasury Secretary Janet Yellen said that rising prices will continue to be an issue as the authorities try to contain the spread of Covid-19. Last week saw a gain of over 6% in the consumer price index making it the fastest rate of growth in over 30 years.

Measures being considered include the removal of some of the tariffs on Chinese imports that were introduced under President Trump. Such tariffs have raised domestic prices and they are just one further reason why gold is still in the ascendancy. But whether the price of gold will continue to rise remains to be seen.

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