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Gold, Shining Again as Inflation Hedge, Gets Above $1,800

CommoditiesDec 17, 2021 21:16
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By Barani Krishnan

Investing.com - Almost a month after losing its $1,800 mantle, gold is back above the key psychological bullish mark, reinforcing its role as an inflation hedge.

U.S. gold futures’ most active contract, February, settled Thursday’s trade up $6.70, or 0.4%, at $1,804.90 an ounce on New York‘s Comex. The last time it closed above $1,800 was on Nov. 22.

For the week, February gold rose 1.1%, its most for a week since early November.

Gold’s ascension came as the Federal Reserve announced its heightened concerns about inflation in the United States on a week that the central bank laid out an expedited pathway to ending its pandemic-era stimulus and raising interest rates for the first time since the Covid-19 outbreak of March 2020.

“Gold is taking the news that central banks are tightening monetary policy and tackling inflation head-on very well,” said Craig Erlam, analyst at online trading platform OANDA.

“You would be forgiven for thinking this would be a negative development for the yellow metal and, in the longer term, I expect it will be. But it's also a development that was almost entirely expected and priced in.”

News of rate hikes are almost always bad for gold. This time though, traders in bullion appear focused on the U.S. inflation story, allowing gold to play its traditional role as a hedge against that, although strong Fed action to right the situation could still be negative for the yellow metal.

The U.S. Consumer Price Index, or CPI, rose 6.8% in the year to November, growing at its fastest pace since 1982, just as it did in October, the Labor Department reported last week. It also announced that U.S. producer prices jumped by a record 9.6% year-on-year in November.

Gold, Shining Again as Inflation Hedge, Gets Above $1,800
 

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