Gold futures jumped to their highest level since September 7 on Friday before giving back about half of its earlier gains into the close. Besides closing higher for the session, the market also posted its second consecutive weekly gain. A weaker U.S. Dollar helped drive up foreign demand for the dollar-denominated asset as well as growing inflationary pressure.
On Friday, December Comex gold settled at $1796.30, up $14.40 or +0.81%.
Comments from key Fed speakers helped fuel the volatility on Friday when they made conflicting remarks about inflation.
Atlanta U.S. Federal Reserve President Raphael Bostic may have fanned the bullish flames when he said he expects high inflation to persist into 2022 and the central bank should raise interest rates by the end of the year.
Gold prices gave back half of their gains, however, after U.S. Federal Reserve Chair Jerome Powell said he expected inflation to ease next year and that the U.S. central bank was on track to begin winding down its stimulus.
Fed’s Bostic Sees Higher Prices into 2022, then Higher Interest Rates
Supply chain disruptions and labor market constraints, coupled with strong consumer demand, could keep inflation high into 2022, Atlanta Federal Reserve Bank President Raphael Bostic said on Thursday.
Once those issues get resolved, labor markets will heal and the Fed will be able to start raising interest rates, he added.
“It’s becoming clearer and clearer that this is going to last into 2022,” Bostic said of rising inflation pressures. “Part of the ultimate answer to how long this will take will be how quickly we resolve some of the coronavirus issues as well as some of the supply chain challenges that are happening at a global level.”
“Demand remains very strong,” he added, so if the supply and labor constraints can get resolved, “I think there’s a lot of space for the economy to grow.”
“I was thinking late third, maybe early 4th quarter for 2022,” Bostic said in a CNBC interview, when asked when he had penciled in an interest rate hike. By then, he said, the U.S. economy will be back to full employment.
Time for Fed to Taper Bond Purchases but Not to Raise Rates, Powell Says
Federal Reserve Chair Jerome Powell on Friday said the U.S. central bank should start the process of reducing its support of the economy by cutting back on its asset purchases, but should not yet touch the interest rate dial, Reuters wrote.
“I do think it’s time to taper; I don’t think it’s time to raise rates,” Powell said in a virtual appearance before a conference, noting that there are still five million fewer U.S. jobs now than there were before the coronavirus pandemic. He also reiterated his view that high inflation will likely abate next year as pressures from the pandemic fade.
“We think we can be patient and allow the labor market to heal,” he said.
Gold traders can expect to see heightened volatility as we approach the next Federal Reserve meeting on November 2-3. The price action on Friday suggests traders are looking for clarity from the Fed regarding the timetable for its first rate hike.
Until the bulls are comfortable with the timing of the first rate hike, they’re likely to buy the dips while probing the upside for buy stops.
We haven’t seen evidence of investors chasing the market higher, but we do believe that the bears, betting on tapering and a sooner-than-expected rate hike, are selling rallies.