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Fed Focus on Consumer Price Index Could be Positive for Gold

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EDITOR NOTE: CNBC reports that as new monthly U.S. economic data keeps coming out that paints a picture of rising inflation and Fed monetary policies designed to deal with that, the price of gold is rising. These prices could rise even further when the new Consumer Price Index figures become available. TD Securities head of commodity strategies Bart Melek says that, even with these positive signs for the precious metal, it will “be tough for gold to take off” as long as the U.S. dollar stays strong. In the coming weeks and months, however, lingering pandemic issues, supply chain problems, geopolitical unrest, and the IMF revaluing the global SDR basket on September 30 could all have a major downward impact on the dollar and allow for that gold takeoff. 

Gold prices rose on Monday in the run-up to the release of key U.S. economic data including readings on inflation that could dictate the path of Federal Reserve monetary policy.

Spot gold rose 0.4% to $1,795.20 per ounce, while U.S. gold futures were little changed at $1,792.60.

Focus will be on the monthly U.S. consumer price index - the Fed’s preferred gauge of inflation - due on Tuesday. The August retail sales and production figures are also set for release this week.

The Fed’s emphasis is on employment and it is not particularly worried about inflation, presupposing an accommodative stance that is positive for gold, said Bart Melek, head of commodity strategies at TD Securities.

Melek, however, said it could “be tough for gold to take off” as the dollar remains strong, keeping market attention on what the Fed would do at its next meeting on Sept. 21 to 22.

Gold is seen as a hedge against inflation and currency debasement but also contends with the greenback for safe-haven status.

The dollar index hit a multi-week high on Monday, raising bullion’s cost for holders of other currencies.

Cleveland Fed President Loretta Mester said on Friday she would still like the central bank to begin tapering asset purchases this year, joining a chorus of policymakers stating plans to begin scaling back support despite weaker jobs growth in August.

Citi Research said in a note that it maintained a slightly hawkish bias heading into the Sept. 21 meeting, but a dovish surprise could allow gold to break higher towards $1,900.

Silver fell 0.1% to $23.70 per ounce and platinum eased 0.1% to $954.41, while palladium rose 0.6% to $2,152.75 after hitting its lowest level since August 2020.

Original post from CNBC

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