Gold Adds To Weekly Gain on Lower Dollar, Higher Inflation — Is $1,900 Next?

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Gold futures rallied again to finish the trading week, allowing the yellow metal to notch the second consecutive weekly gain. Gold prices have been benefiting from weakness in the US dollar and higher inflation readings across the world’s largest economy. Now that inflation is rearing its head, can gold repeat last year’s epic performance and top $2,000?

June gold futures advanced $15.10, or 0.83%, to $1,839.10 per ounce at 16:44 GMT on Friday on the COMEX division of the New York Mercantile Exchange. Gold is poised for a weekly boost of 1.3%, paring its year-to-date decline to nearly 3%.

Silver, the sister commodity to gold, is trading way above the $27 mark to end the trading week. July silver futures increased $0.376, or 1.39%, to $27.435 an ounce. Silver prices flatlined for the week, and the white metal is still up 3.5% so far this year.

Retail sales were flat in April, falling short of the median estimate of 1%. This is down from the 10.7% spike in March, suggesting that the stimulus injection has subsided.

Import prices surged 10.6% year-over-year in April, while export prices climbed at an annualized rate of 14.4%.

In other economic data, industrial production edged up 0.7% in April, manufacturing output rose 0.4%, and capacity utilization clocked in at 74.9%. Business inventories increased 0.3%.

On Thursday, producer prices advanced 6.2% year-over-year in April, coming in higher than the market forecast of 5.9%. On a monthly basis, the producer price index (PPI) jumped 0.6%, double the median estimate.

The US dollar pared its weekly gain as the US Dollar Index (DXY) tumbled 0.43% to 90.37, from an opening of 90.76%. The index, which gauges the greenback against a basket of currencies, notched a weekly boost of 0.15%. A weaker buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.

Overall, because of the disappointing job numbers, sluggish economic data, and the surging inflation, market analysts do not believe the Federal Reserve will be signaling tapering its unprecedented quantitative easing (QE) program anytime soon. Several central bank policymakers have also stated that the Eccles Building is unlikely to pull the trigger on monetary policy normalization.

This leaves gold in a tough place. While higher inflation would support gold prices, the Fed unlikely to raise rates would prevent the precious metal from exploding. That said, many industry observers believe that gold prices testing all-time highs is quite possible.

Neil Wilson, the chief market analyst at Markets.com, wrote in a daily research note:

“Higher interest rates tend to be bad for gold, but rising inflation is good, so the market is in a bit of a tussle to see where real rates are going. With the Fed still seen keeping its thumb firmly pressed on shorter-dated yields, rising inflation expectations would tend to support the bull case for gold.”

In other metal markets, June copper futures fell $0.0375, or 0.8%, to $4.653 per pound. June platinum futures surged $16.70, or 1.37%, to $1,223.00 an ounce. June palladium futures tacked on $24.40, or 0.85%, to $2,889.00 per ounce.

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