Gold logs highest price of 2022 so far because its ‘a rocket ship and inflation is its fuel’

Gold futures climbed on Wednesday for a fourth straight session, settling at their highest level of the year so far, as the U.S. dollar and Treasury yields declined in the wake of stronger-than-expected U.S. consumer inflation data.

Consumer prices rose 0.5% in December to push the increase in the cost of living last year to a nearly 40-year high of 7%, indicating high U.S. inflation is likely to persist well into 2022.

The gain in the consumer-price index exceeded the 0.4% forecast of economists polled by The Wall Street Journal. The data also reinforce the view that inflation is running well above the Federal Reserve’s annual target of 2%.

“The most important takeaway for gold here is that gold is a rocket ship and inflation is its fuel,” said Peter Spina, president and chief executive officer at “Now with inflation showing itself to be baked into the system and growing recognition of inflation, gold is going to benefit in a big way.”

“The most important takeaway for gold here is that gold is a rocket ship and inflation is its fuel.”

— Peter Spina,

In Wednesday dealings, February gold

rose $8.80, or 0.5%, to settle at $1,827.30 an ounce, following a 1.1% gain on Tuesday. Prices for the most-active contract ended at their highest since Dec. 31 and notched a fourth straight session gain, the longest string of gains since a seven-session stretch ended Nov. 12, FactSet data show.

Meanwhile, March silver

climbed 39 cents, or 1.7%, to settle at $23.207 an ounce, after rising 1.6% in the previous session.

Following the CPI data, the U.S. dollar fell against most currencies and U.S. benchmark stock indexes traded higher. “It looks like the market had prepared for even hotter inflation, which obviously didn’t materialise,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a market update “So the reaction can best be described as relief.”

In Wednesday dealings, the U.S. dollar, based on the ICE U.S. Dollar index
traded 0.7% lower at 94.991, boosting prices for dollar-denominated gold. The 10-year Treasury note
traded at 1.724%, down from 1.745% at 3 p.m. Eastern time Tuesday, raising investment appeal for gold, which offers no yield.

The dollar had weakened on Tuesday, as the market factored in comments from Federal Reserve Chairman Jerome Powell during his confirmation hearing for a second four-year term.

“No fireworks, rather dovish and no surprises,” said Jeff Wright, chief investment officer at Wolfpack Capital, referring to Powell’s comments. It is “very clear the votes to confirm are already tallied and his confirmation is a foregone conclusion.”

Gold has “done well with Powell’s ‘go slow’ management of the Fed,” he told MarketWatch.

However, Wright said he sees the possibility of an acceleration in the tapering of asset purchases and quantitative tightening on the horizon, “which both would halt any gold rally.”

On Tuesday, gold prices retained gains after Powell said the central bank’s plans to raise interest rates shouldn’t hurt economic expansion, essentially painting a picture of a “soft landing” rather than a recession.

In his comments Tuesday, Powell also said it would be a “long road” to policy normalization, which “offset to a degree the more hawkish tenor of the recently released FOMC minutes, said Peter Grant, vice president and senior metals strategist at Zaner Metals.

“He also said it may take up to four meetings to work out the parameters of a balance sheet runoff. That would take us into June,” Grant told MarketWatch late Tuesday. “The Fed must tread cautiously, tightening enough to tamp inflation but not so quickly as to adversely impact the fragile labor market.”

“In my opinion, the Fed views full-employment as the more important of its two mandates,” he said. “They’ll be more cautious this year than the minutes may have implied.”

See: Fed’s Mester banks shrinking balance sheet ‘as fast as we can’ without pushing markets off track

On Wednesday afternoon, the Fed’s latest Beige Book survey showed the economy grew at a “modest” pace in December and said labor shortages and wages added to cost pressures. In electronic trading after the release, February gold slipped from the day’s settlement to stand at $1,825.90.

Looking ahead, if Thursday’s U.S. producer-price index numbers also come in higher, then gold prices may try to break past the $1,850 mark, said Chintan Karnani, director of research at Insignia Consultants.

In other Comex trading, March copper
tacked on 3.3% to $4.577 a pound. April platinum
added 0.7% to $980.10 an ounce and March palladium
settled at $1,915.80 an ounce, down 0.3%.