Gold futures ended higher on Thursday to mark their biggest daily gain of the month so far and the highest finish since February, supported partly by a decline in the U.S. dollar and an expected rise in inflation.
Prices for the precious metal extended their gains after Federal Reserve Chairman Jerome Powell on Thursday said the central bank wanted to see actual evidence of a strong economy before it would even consider pulling back from its loose policy stance. He also reiterated expectations that an anticipated rise in inflation this year would be temporary.
The latest string of strong economic data, including the good March U.S. jobs report last Friday and ‘hot’ ISM purchasing managers surveys, have “suggested the economic recovery is accelerating,” said Tyler Richey, co-editor at Sevens Report Research. Subsequently, 5-year breakeven inflation rate expectations are once again firming beyond 2.50%, while bond yields have actually pulled back in recent sessions, he said.
“The decline in real rates as a result of those shifting dynamics has supported gold from a fundamental standpoint,” he told MarketWatch.
If the bond yield retreat and the pause in the dollar rally continue, “gold should breakout,” with the next upside target being around $1,805, he wrote in a Thursday newsletter.
climbed $16.60, or nearly 1%, to settle at $1,758.20 an ounce on Comex. That was the highest finish for a most-active contract since Feb. 25, and largest one-day dollar and percentage climb since March 31, FactSet data show.
Prices posted a loss of nearly 0.1% on Wednesday, which was the first daily decline in five sessions. Gold has also registered losses in each of the past three months.
“One of the main drivers of the recent sell-off in gold has been the ongoing rise in US Treasury yields as the market continues to price in the inflationary effect of the US fiscal and monetary largesse,” wrote Nick Cawley, strategist at DailyFX.com.
Gold-backed exchanged-traded funds also lost 107.5 metric tons in March, marking outflows the fourth time in five months, according to a report from the World Gold Council Thursday. The report also said March was “second month in a row in which net outflows ranked the top 10 worst outflows historically.”
The gold-backed SPDR Gold Shares ETF
was up 1.1% in Thursday dealings. It had lost 1.1% in March.
“The perceived opportunity cost of holding gold was impacted directly by rising interest rates throughout Q1 2021 and though it remains a concern for investors heading into Q2, higher inflation expectations may provide tailwinds for gold in the short term,” said Juan Carlos Artigas, head of research for the World Gold Council.
Meanwhile, Powell speech Thursday came a day after the release of minutes from the Fed’s March 16-17 policy meeting.
The account of that March meeting show that it would be “some time” before the Fed started tapering its asset purchases, a decision that would hinge on the realization of substantial further progress toward the Fed’s inflation and employment goals.