Gold

Gold shines bright as investors seek protection from the inflation monster

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Gold remained above $1,850 an ounce on Monday (Nov. 15), after climbing to a nearly five-month high last week as concerns about rising inflation prompted investors to go for the safe haven commodity.

Gold futures gained about 2.9% last week after data showed consumer prices in the U.S. rose at their fastest annual rate in over thirty years in October.

That data spurred bets that inflation could linger longer than central bankers expect and raised speculation that the U.S. Federal Reserve might start hiking rates sooner than earlier thought.

In an interview with CBS News’ “Face the Nation” on Sunday (Nov. 14) Minneapolis Federal Reserve Bank President Neel Kashkari said he expects higher inflation continuing over the next few months
but warned against central bank overreaction to elevated inflation as it is likely to be temporary.

“We are in this transition of central banks mischaracterizing inflation. The repeated narrative: ‘It is transitory, it is transitory, it is transitory.’ It is not transitory,” Mohamed El-Erian, chief economic advisor at Allianz told CNBC on Monday (Nov. 15) El-Erian added.

“Companies are charging higher prices [and] there’s more to come. Supply disruptions are lasting for a lot longer than anybody anticipated. Consumers are advancing purchases in order to avoid problems down the road — that of course puts pressure on inflation. And then wage behaviors are changing”

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Separately, U.S. Treasury Secretary Janet Yellen said that the surge in U.S. consumer prices could be attributed to the Covid-19 and the country must continue to “make progress” against it to tone down inflation.

Across the Atlantic, European Central Bank (ECB) President Christine Lagarde said on Monday (Nov. 15) that inflation will take longer than expected to subside.

Speaking before the Economic and Monetary Affairs Committee of the European Parliament, Lagarde
said the ECB expects the price pressure on goods and services to subside as the post-Covid-19 economic recovery continues. However, the duration of supply challenges currently facing both Europe and the world is uncertain and expected to persist into 2022.

Bank of England (BoE) Governor Andrew Bailey who testified before the British parliament along with BoE’s Michael Saunders, Huw Pill, and Catherine Mann, stated on Monday he “feels uneasy” about the “inflation situation.”

Warren Patterson, head of commodities strategy at ING, said: “Inflation numbers have provided a boost to gold. However, prices could trend lower towards $1,700 over the course of 2022 as rising inflation will likely mean that central banks speed up the pace of monetary tightening.”