By Barani Krishnan
Investing.com - Gold longs are still waiting at the $1,850 altar, but their search for suitors at that level ended in vain for a second week in a row.
That, however, did not stop believers in the yellow metal from posting a 0.8% at Friday’s close and a 0.3% rise on the week. It was, in fact, a second straight positive week for gold after last week’s 3.3% rally that proved its best since the final week of October.
Benchmark gold futures on New York’s Comex settled at $1,838.10, up $14.10 on the day and $6.15 on the week.
The spot price of gold was at $1,842.87 by 3:41 PM ET (19:41).
Traders and fund managers sometimes decide on the direction for gold by looking at the spot price — which reflects bullion for prompt delivery — instead of the futures.
Gold longs have had an interesting couple of weeks after arguments about runaway inflation in the U.S. were reignited by a raft of data on consumer and producer prices, industrial production and consumer sentiment.
The U.S. Consumer Price Index grew by 4.2% in the 12 months to April for its largest increase in almost 13 years, while the Producer Price Index expanded by 6.2% last month over a one-year period for its biggest expansion in a decade.
US industrial production rose 0.7 percent in April, slowing by a third from March as carmakers idled some plants after a shortage in auto circuitry microchips although a spike in mining still boosted activity, the Federal Reserve reported.
An early reading of U.S. consumer confidence in May showed a drop as Americans worried about inflation and its impact on their income, the University of Michigan said in a survey closely followed by the country’s economists.
U.S. retail sales, meanwhile, turned flat in April after a jump of nearly 11% in March, according to data from the Commerce Department that took some heat off inflationary expectations in an economy rapidly recovering from the coronavirus pandemic.
The Federal Reserve acknowledges price pressures arising from bottlenecks in supply chains struggling to cope with demand in an economy reopening after months of pandemic-suppression.
But the central bank insists that these inflationary pressures are “transitory” and will fade as the economy makes a full recovery. It also says it does not see the need for now to raise interest rates.
“The data over the past couple of weeks will not trigger a change in the Fed's ultra-accommodative stance,” said Ed Moya, analyst at online trading platform OANDA. “The next few months will show higher inflation forecasts, but that should start to trend lower once the base effects kick in.”
“Gold’s next challenge remains recapturing the $1,855 level, which could open the floodgates for momentum traders.”
Logically, gold should have rallied on the ramping inflation signal given its long-standing role as a store of value and hedge against rising costs.
But in markets ruled by distorted expectations and hype, there is little room for logic.
So, the Dollar Index and 10-year Treasury note have rallied intermittently with gold this week, hampering the yellow metal’s chance of a breakout that could propel it nearer to the $1,900 level that could set the stage for a return of August highs above $2,000.