Gold Has First Weekly Loss in Five as U.S. Inflation Fuels Fed Taper Talk

By Barani Krishnan

Investing.com - Gold booked its first weekly loss in five as brief euphoria for longs over the dismal U.S. jobs report for August gave way to dismay as the dollar rebounded on relentless talk of a Federal Reserve stimulus taper.

Most-active December gold futures on New York’s Comex closed down $7.90, or 0.4%, at $1,792.10 an ounce. For the week, it fell 2.3%, its most since the week to July 29. It was also Comex gold’s first weekly loss since the end of July.

Friday’s drop in gold was partly pressured by data showing U.S. producer prices rising by 8.3 percent in August, their most in over a decade, as inflationary pressure grew unrelentingly in an economy trying to break out of the shackles of the coronavirus pandemic.

The Fed’s stimulus program and other monetary accommodation have been blamed for aggravating price pressures in the United States.

The central bank has been buying $120 billion in bonds and other assets since the Covid-19 outbreak of March 2020 to support the economy. It has also been keeping interest rates at virtually zero levels for the past 18 months.

The question of when the Fed ought to taper its stimulus and raise interest rates has been hotly debated in recent months as economic recovery conflicts with a resurgence of the coronavirus’ Delta variant. The argument for a taper was, however, weakened considerably after U.S. jobs growth for August came in at 70% below economists’ target.

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The dollar initially tumbled on that jobs report, fueling gold’s rally to a four-week high of almost $1,837. But almost immediately after that, the Dollar Index Dollar Index, which pits the dollar against six major currencies, rebounded, sending gold to a low of just above $1,783.After declining 3.5% in 2020 from business shutdowns owing to Covid-19, the U.S. economy expanded robustly this year, expanding 6.5% in the second quarter, in line with the Federal Reserve’s forecast.

The Fed’s problem, however, is inflation, which has been outpacing economic growth. The Fed’s preferred gauge for inflation - the core Personal Consumption Expenditures Index, which excludes volatile food and energy prices - rose 3.6% in the year through July, its most since 1991. The PCE Index including energy and food rose 4.2% year-on-year.

The Fed’s own target for inflation is 2% per annum.