Gold Heads for Third Weekly Advance With Inflation in Focus

One kilogram gold bars on display. (Photographer: Wei Leng Tay/Bloomberg)

Gold Heads for Third Weekly Advance With Inflation in Focus

Gold headed for a third straight weekly gain as investors weighed signs of inflation and economic recovery.

The precious metal is trading near the highest level in more than four months amid rising inflation expectations, static Treasury yields and concerns of a resurgence of coronavirus cases in some countries. Holdings in exchange-traded funds backed by the precious metal have resumed an uptrend.

“Higher U.S. inflation and lower government bonds yields have lifted gold back” to $1,870 an ounce, UBS AG analysts including Wayne Gordon wrote in a note.

Bullion gave up some early gains on Friday on a strengthening U.S. dollar, though not enough to upset the precious metal’s push toward its third straight weekly increase. The greenback rose after the release of data showing output at U.S. manufacturers and service providers advanced to a fresh record in May. Gold is up 2% for the week.

Gold Heads for Third Weekly Advance With Inflation in Focus

The IHS Markit flash composite index of purchasing manager at manufacturers and service providers surged to its highest in data going back to 2009, underscoring solid demand that’s contributing to added inflationary pressures.

Meanwhile, traders mostly shrugged off concerns over Federal Reserve minutes Wednesday that showed some policy makers are open to talking about tapering bond purchases, focusing instead on the U.S. central bank’s accommodative stance. Meanwhile, applications for U.S. state unemployment insurance fell last week to a fresh pandemic low, signaling steady improvement in the job market as remaining business restrictions are lifted.

Still, UBS analysts kept their end of year forecast for gold unchanged at $1,600 an ounce, as “we expect fading inflation surprises, higher U.S. government bond yields, rising vaccination pace to reduce uncertainty and the U.S. dollar to peak.”

Spot gold rose 0.2% to $1,880.83 an ounce by 3:45 p.m. in New York, after earlier climbing as much as 0.7%. Prices rose to $1,890.13 on Wednesday, the highest since Jan. 8. Futures for June delivery fell 0.3% to settle at $1,878.90. Spot silver, platinum and palladium edged lower. The Bloomberg Dollar Spot Index moved higher after dropping 0.4% on Thursday.

Bullion may have also been supported after the extreme volatility in cryptocurrencies this week. Bitcoin, which is often touted as a replacement for gold due to its inherently limited supply, plunged this week.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.