Gold Gains Strengthen to a Three-Month High Below $1,900

18 May 2021 · 3rd Party Analysis

Gold Gains Strengthen to a Three-Month High Below $1,900

WRITTEN BY ThorFX

In Summary

  • Gold jumps to levels above $1,870 for the first time in three months
  • Various factors contribute to the accelerating price

Gold has been gaining upside momentum for the past two months and just this morning hit a fresh three-month high. As a continuation of its bullish streak, the precious metal advanced earlier to a session high of $1,875, a price level last seen in early February.

Several factors have contributed to the rise in the yellow metal price. The declining US dollar has been narrating the developments over the currency market which has ricocheted into the commodity sector, lifting gold’s price. The appeal of gold as a traditional hedge against inflation has attracted buyers who seek safety amid stock market jitters caused by a surge in consumer price inflation. According to the CPI data for April, consumer prices have spiked 4.2% on an annual basis, threatening the high valuation of the stock market, especially technology stocks, which are more sensitive to higher inflation.

Gold’s current rally to levels above $1,870 a troy ounce was also fueled by the lingering threat that the flareup in Covid-19 cases in India could derail the global recovery and reverse some of the progress over-vaccination campaigns in developed regions of the world.

The Pandemic Rages On

The coronavirus pandemic continues to sweep across India, parts of Asia, and Latin America. Low- and mid-income countries are now at the epicenter of infectious disease as developed countries are seeking ways to get involved by offering humanitarian aid. In response to surging cases in Thailand, the World Economic Forum canceled its annual meeting that was planned for August in Singapore. Citing “tragic circumstances unfolding across geographies”, the WEF moved the meeting to the first half of 2022.

Gold traders and investors will be monitoring the report from the Federal Reserve’s last meeting. April’s FOMC minutes, to be released Wednesday will deliver clues about how Fed officials view the recovery and the prospects of higher inflation. Some Fed members have already downplayed inflation fears, including Jay Powell, Fed’s Chair, and Richard Clarida, Fed’s Vice-Chair.

Adding fuel to gold’s rising price is the conflict between Israel and Gaza, which has seen dozens of victims and has captured the attention of world leaders. President Biden yesterday called for a cease-fire in a call with Israel’s Prime Minister Benjamin Netanyahu.

Mr. Biden “expressed his support for a cease-fire and discussed U.S. engagement with Egypt and other partners toward that end,” according to a statement released by the White House. The US President “reiterated his firm support for Israel’s right to defend itself against indiscriminate rocket attacks,” while he also “encouraged Israel to make every effort to ensure the protection of innocent civilians.” The cessation of hostilities is yet to happen as both sides keep up attacks despite international pressure.

Amid global economic and geopolitical uncertainty, gold’s rebound puts it close to this year’s opening price. Gold is steadily erasing the declines accumulated during the first quarter. The yellow metal opened for trading on Jan 4 at $1,905 per troy ounce. The current market price hovers about 1.5% from the opening price in 2021.

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