As trade opened for the week beginning March 21st, the price of gold went up by 0.8%. This increase even as traders and analysts alike quailed at the possibility of rising inflation.
The spike is thanks to how oil prices continue to rise in the face of supply chain issues and the ongoing conflict between Ukraine and Russia.
The current decline inequities in the United States were seen as the primary factor for this increase as demand for gold has risen considerably over the past several weeks. However, any gains from this increased demand were slightly cut following an announcement from Jerome Powell, chairman of the US Federal Reserve.
Powell said that financial officials are working on protocols to help reduce the inflation rate. However, such a move may entail an increase in interest rates sooner rather than later.
TD Securities’ global head of commodity strategy Bart Melek expects a slowdown in the US economy even as the price of commodities continues to rise. But he is quick to assure investors that, at present, rates remain accommodative, creating a suitable environment for growth where gold is concerned.
Before the current rally, the value of gold dropped by 3.4% last week as interest rates were raised for the first time since 2018. Likewise, spot gold went up by 0.6% ($1,933.09 per ounce) in New York during midday trading on March 21st; spot silver, platinum, and palladium also registered gains during the same period.
A Need for Balance
The rising price of commodities is essentially tempering gold’s appeal as a hedge against inflation. Likewise, the ongoing conflict in the Balkans is fuelling a growing demand for haven assets, particularly precious metals and gemstones. Indeed, investors are striking a balance between the increased appeal of gold as an inflation hedge and the looming possibility of an increase in borrowing costs. The latter is expected to make gold less competitive than other assets that can grow with interest.
Meanwhile, according to former US Secretary of the Treasury Lawrence Summers, the US central bank may raise borrowing costs significantly higher than current projections if it aims to push inflation down to a more manageable level.
For their part, several officials and financial analysts called for more immediate action concerning federal inflation policies as a way of curbing the most rapid rate of inflation in nearly four decades.