On November 12, the dollar index weakened, limiting the intraday decline in gold prices. Gold may still be at its highest weekly gain since May 7th, boosted by US consumer concerns about rising prices and the anti-inflation gold charm. The Fed’s “wait and see” strategy has some drawbacks. Inflation expectations are now at historic highs. If inflation expectations continue to rise, a vicious circle of inflation will form, and the Fed will lose its best window of intervention.
The dollar index weakened on Friday (November 12), limiting the intraday decline in gold prices.
Concerns about rising consumer prices in the US may still boost gold’s anti-inflationary appeal.
The main COMEX gold contract fell 0.39 percent to $1,556.6 per ounce at 16:18 Beijing time. The US dollar index was flat at 95.171.
It is worth noting that the US dollar index rose to 95.256, its highest level since late July 2020, increasing the cost of buying gold for non-US citizens.
Earlier, the US announced that consumer prices rose the most in over 30 years last month.
The sharp rise in inflation has also prompted investors to bet on a faster Fed rate hike. Rate increases increase the opportunity cost of holding gold, which pays no interest.
“Until the supply chain resumes, upward price pressure will continue,” said Stephen Innes, managing partner of SPI Asset Management. Innes also predicted a rise in gold prices due to supply chain issues. This may lead to longer-lasting inflation, with slower rate hikes. He added that the rate hike cycle should eventually lower gold’s price.
According to Michael Langford of AirGuide, as the Fed’s gradual reduction in debt purchases and increased stimulus inflows fades, gold tends to fall below $1,850 in the short term.
Everbright Securities’ Gao Ruidong, managing director and chief macroeconomist, released a research report analyzing the risks of the Fed’s “wait and see” interest rate hike strategy.
Inflation expectations are now at historic highs. If inflation expectations continue to rise, a vicious circle of inflation will form, and the Fed will lose its best window of intervention.
Despite US Vice President Biden’s assurances that price increases are temporary, the opposition has found new targets.
Several Republicans on the House Energy and Commerce Committee tweeted that investing trillions of dollars in infrastructure projects will only worsen the US crisis.
Last week, the US Congress passed the infrastructure bill, and Biden won, but his plan to “rebuild a better world” did not receive unanimous Democratic support.
The plan aims to invest 1.85 trillion dollars in the US social safety net over ten years.
“Everyone agrees that the threat of record inflation to the American people is not temporary, but worsening,” said Joe Manchin, a moderate Democrat.