Gold Back at $1,800 Lows as Rising-With-Inflation Theme Busted

By Barani Krishnan

Investing.com - It was good for as long as it lasted — which wasn’t too long, anyway — and gold’s rising-with-inflation story seemed to have come to an abrupt end, with no clear indications why.

Suggestions from the trade was that Jerome Powell’s nomination by President Joe Biden to hold the job of Federal Reserve Chair for four more years could be one reason, as it ushers in a higher degree of certainty over monetary policy — and a downgrade for safe-haven gold.

But gold was already down below the key $1,850 level, even before the White House affirmed giving Powell a new term and making his apparent competitor, Lael Brainard, vice chair at the Fed.

That gold was dropping even before the Fed news suggested that the more than two-week long rally in bullion had reached exhaustion despite the belief of bullion bulls that the yellow metal could run to as high as $1,900.

“The U.S. inflation story hasn’t gone away for sure, but gold’s running-with-inflation story seems busted for now and the Jay Powell story is being listed as the reason, though there’s probably more to it,” said Phillip Streible, precious metals strategist at Chicago’s Blueline Futures.

U.S. gold futures’ most active contract, December, settled Friday’s trade down $45.30, or 2.4%, at $1,806.30 an ounce. It was the biggest one-day loss in gold silence mid-September,

Despite swings below $1,850 last week, December gold had made a 5-week high of almost $1,880, shoring up the confidence of market bulls that the yellow metal could still get to $1,900 on the back of the U.S. inflation theme.

​​Bullion has always been touted as an inflation hedge. But it hasn’t been able to live up to that billing this year on market talk that the Fed will be forced in a faster-than-expected rate hike — speculation that sent Treasury yields and the dollar rallying instead, at bullion’s expense.

That trend abated somewhat after Powell assured earlier this month that the central bank will be patient with any rate hike that will only come after in the later half of next year.

Now, gold’s run on that could be over.

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