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Gold rises to 5-month high amid inflation fears

Gold rose to $1,912.74 per ounce yesterday, breaking through the psychological barriers of $1,900. The gold price rally, the highest in five months, is most likely the result of a weak dollar, inflation, and a drop in U.S. Treasury yields.

U.S. stock indices, the S&P 500 and the Nasdaq declined by 0.1% and 0.2% respectively. Ten-year Treasuries are at 1.58% (from around 1.62% last week) and the euro at $1.2194.
The rise in gold, considered a safe haven for traders, reflects the market’s concerns over rumors of cuts in the Federal Reserve’s (Fed) fiscal stimulus. Yesterday, commenting on this topic, the Fed’s vice chair for supervision, Randal Quarles, said that he does not expect inflation to reach ‘70s levels. “I do not want to overstate my concern”, said the executive at an American think tank event. Quarles also pointed out that a real increase in interest rates “remains far in the future”.

For his part, Federal Reserve Chairman Jerome Powell maintains that it is still too early to talk. Since last year, the US economy has received $120 billion from the Fed. Employment data and inflation are the two main pillars of this institution.

In commodities, West Texas Intermediate crude oil hit $65.83 a barrel, down 0.6%, perhaps due to the possibility of Iran returning to production if Persian Gulf sanctions are lifted. The fall in WTI also came at a time when a Dutch court found oil giant Shell partly responsible for climate change and requested that they significantly decrease their carbon emissions.

Traders are likely to keep an eye on the following economic events that could have an impact on the markets today:

United States Gross Domestic Product (GDP) q/q
United States Core Durable Goods Orders m/m
United States Pending Home Sales m/m
Bank of Korea Interest Rate Decision

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