Gold soared again above $1,900 an ounce on Friday, effectively closing out the month with a near 8% gain that gave longs in the yellow metal their biggest return in ten months.
“Bullion had a good week and while the rally appears to be taking a break, it seems it might only be a temporary one,” said Ed Moya, analyst at online trading platform OANDA.
“The true test for gold will be after the next couple of months of hot inflation reports and if we have some surprising better-than-expected nonfarm-payrolls reports,” he said, referring to U.S. monthly jobs numbers, that have been volatile since February.
According to statistics from the Bureau of Economic Analysis, one of those inflation reports, Personal Consumption Expenditure, which is widely followed by the Federal Reserve, increased by 3.6 percent in the year to April.
Gold, which is often seen as an inflation hedge, regained its unsteady $1,900 footing as a result of the higher PCE reading.
Gold for June delivery on the New York Comex ended Friday’s session at $1902.5 an ounce, up $6.80, or 0.4 percent.
The more active Comex gold contract for August climbed $6.80 to $1,905.30 on the day.
Both futures were up around 1% for the week, while they were up over 8% for the month — the greatest monthly increase since July 2020.
When everything else is equal, a greater inflationary environment is beneficial to gold, which is regarded as the best store of value in both financial and political turmoil.
However, gold’s competitors, the dollar and U.S. bond yields, have surged in recent months on signs of rising inflation, as investors bet the Fed would boost rates faster than expected – something the central bank has vowed to avoid. Gold fell to a near 11-month low of under $1,674 as a result of such speculation, before yields and the dollar fell, helping the yellow metal recover.
The Fed recognizes pricing pressures resulting from bottlenecks in U.S. supply chains striving to meet demand in an economy that is reopening after months of epidemic suppression.
Over the last decade, the Fed has aimed for annual inflation of 2%, but it has only just achieved that objective, with opponents blaming the discrepancy on the central bank’s steadfast adherence to the PCE – a tame statistic that excludes the most volatile components of inflation, food and energy expenses.
On the other hand, the Consumer Price Index, which covers food and energy costs, increased by 4.2 percent in April, the biggest in almost 13 years, following steep cost hikes in an economy still recovering from the coronavirus outbreak.