Gold News

Gold Price Erases US Inflation Gains as 'Transitory' Challenges Euro Central Bank

The GOLD PRICE fell sharply on Friday, erasing most of this week's US inflation-data gain for Dollar investors but heading for the highest weekly close in 6 versus the Euro as a European Central Bank policymaker called the rise in consumer prices "transitory".
 
European crude oil today hit fresh 3-year highs above $85 per barrel but natural gas prices retreated by more than 5% and wholesale electricity quotes reversed most of Thursday's 65% spike.
 
Thanks to " a more hawkish tone by some central banks," says head of research Juan Carlos Artigas at the mining industry's World Gold Council, "investors are concerned about the forthcoming headwinds on gold."
 
Both the giant GLD and smaller IAU gold-backed ETF investment trust funds shrank this week to their smallest since April last year.
 
But "a lot of what we see is transitory" said Pierre Wunsch, head of the National Bank of the Belgium and an ECB voting member to Bloomberg today, using a phrase to justify leaving monetary policy which one US Fed member this week said has " become a swear word" for him and his staff.
 
"It could turn into something a bit stronger," Wunsch went on, saying that "There are unknown factors surrounding second-round inflation effects" but that the "ECB is quite flexible on stimulus" as it considers ending its Covid Pandemic QE bond buying in early 2022.
 
Gold priced in the Euro this week hit 4-month highs at €1552 per ounce before dropping back to €1524 as the weekend drew near.
 
Dollar gold in contrast touched only its highest in only 4 weeks at $1800 on Wednesday's US inflation data before also losing 1.8% by the start of New York gold trading today.
 
So-called "core sticky" prices in the US consumer shopping basket last month showed 2.7% inflation from the same month a year ago, reflecting strength in underlying costs "because these goods and services change price relatively infrequently [and so] incorporate expectations about future inflation to a greater degree," according to the Federal Reserve Bank of Atlanta's analysis.
 
Chart of US 'sticky prices' inflation vs. Dollar gold price. Source: St.Louis Fed
 
"Unless you embrace the analytically meaningless phrase of 'persistently transitory inflation'," said economist Mohamed El-Erian, chief economic adviser at investment giant Allianz, in a separate Bloomberg interview Thursday, "we should take inflation seriously and central banks should move quickly."
 
The Bank of England is set to raise short-term UK interest rates from zero this December according to speculative betting in the futures market, the Financial Times said this week.
 
The UK gold price in Pounds per ounce today erased all of this week's prior 2.0% gain to trade below last Friday's finish at £1290.
 
London's FTSE 100 share index meantime edged above August's peak to reach its highest level since mid-February 2020, eve of the Covid Crash across global financial markets.
 
With London's top 100 index led by Dollar-earning international pharma, consumer goods, banks and fossil-fuel producers, the more UK-focused FTSE250 index has already breached its pre-Covid highs this April, setting a run of new all-time peaks since then.
 
Longer-term government bond yields today continued to rally from this week's drop, pulling Germany's 10-year borrowing costs back to last Friday's closing level of minus 0.15% per annum while 10-year UK Gilt rates held 10 basis points below Monday's 17-month highs above 1.20% per annum.
 
US Treasury yields also rose as bonds fell in price, taking 10-year rates 5 basis points above yesterday's 1-week low of 1.52%.
 
Inflation-protected TIPS yields fell in contrast, dropping to new 5-week lows beneath minus 1.00% as 'breakeven' inflation forecasts in the US bond market rose.
 
Silver today fell less steeply than gold prices, nearing the weekend with a 2.9% gain for Dollar investors from last Friday's finish.
 
Platinum prices held firmer still, heading for their highest weekly close since start-August at $1057 per ounce.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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