*The gold rally came despite strength in the US dollar
*30-year high US inflation rates remain for much longer than expected
Gold prices rallied, and record prices may not be far out of reach, some analysts said. US consumer price index up 6.2% year over year in October for largest jump since November 1990. Inflation is growing red hot and the transitory theme is falling apart. US Federal Reserve officials, including Vice Chairman Richard Clarida, have said a big spike in inflation was largely “temporary.”
Strong inflation will drive buyers back into gold, joining the strong buying we are witnessing in Asia and elsewhere. Bitcoin has jumped for the same reason. Bitcoin surged above the $64,915 level on Thursday, just below its all-time high of $68,990 on Wednesday. The fundamentals are very bullish for gold. On Tuesday, gold snaps five-day uptrend, December gold contract climbed intraday at $1,866.50 an ounce (31.10347 gram) on Comex, for its highest since 6 June.
The rally came despite strength in the US dollar, which usually weighs on demand for precious metals from holders of other currencies. Futures prices marked a record settlement of $2,069.40 in August 2020. Gold may resume its march to record prices, while the effects of the Fed’s tapering of asset purchases begin to show themselves.
Precious metal investors see holding gold and silver as an insurance policy for the possibility that the FOMC loses the ability to control inflation, and the risks that these 30-year high inflation rates remain for much longer than expected,” said Chris Gaffney, president of World Markets at TIAA Bank.
Investors are rushing to pad their portfolios with both new and traditional inflation hedges, a sign higher prices won't abate anytime soon. Market sentiment worsens as reflation fears escalate ahead of US CPI. China, stimulus headlines add to the risk-off mood. China’s factory gate prices rose at their fastest pace in 26 years in October, beating forecasts and further squeezing profit margins for producers already grappling with soaring coal prices and other commodity costs due to a power crunch.
There will be a coronavirus free world in 2022. Most traders are now looking at sectors which will outperform next year and have started placing bets on the same. Many analysts said our personal bet is on silver, natural gas. In 2021 crypto currency traders have made a historical high profit. This crypto bubble will burst by end April 2022.
Once the crypto bubble bursts then gold price will reach stratosphere. We are not against crypto currencies. We just fear the pace of rise of crypto currencies in the last six months and the hyper bullish outlook for next year. Gold being the classic hedge against inflation, we believe inflation is the underlying positive environment that will foster the gold market rally in the weeks and months ahead.
(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 11-11-2021