By Barani Krishnan
Investing.com - Gold’s doubters might be having second thoughts.
On Wednesday, the yellow metal smashed past the key $1,830-an-ounce resistance that had been the bugbear of longs in the market for almost two months.
Gold futures’ most active contract on New York’s Comex, February, settled up $30.80, or 1.7%, at $1,843.20. The session peak of $1,843.50 also marked a two-month high.
Technical charts indicated that Comex gold’s next stop could be $1,860.
“The $1,830 had been a major wall of resistance for gold longs and the successful demolition of it puts them on the strongest footing since November,” said Sunil Kumar Dixit, technical strategist at skcharting.com. “So long as gold keeps above $1,825, then the $1,860 target is very possible.”
The near 4% rally in gold since the end of November has also lent a new glow to the yellow metal’s prowess as an inflation-hedging tool amid the worst U.S. price pressures in 40 years. In terms of absolute gain, Wednesday’s advance in Comex gold was the biggest in a day in more than a month — the previous being a 1.9% jump on Dec. 15.
Gold has always been branded as an inflation hedge but it failed to live up to that tag several times last year as the Dollar Index and U.S. Treasury yields rallied instead on expectations of rate hikes.
The Federal Reserve, or Fed, dropped interest rates to virtually zero after the outbreak of the coronavirus pandemic in March 2020, keeping them at between zero and 0.25% over the past 20 months. But officials at the central bank say a series of rate hikes will be needed now, to counter inflation as prices of almost everything have soared from the lows of the Covid-19 crisis due to trillions of dollars of pandemic relief spending, higher wage payout and supply chain disruptions.
News of rate hikes have typically been negative for gold, and this was somewhat reflected last year as the yellow metal closed 2021 down 3.6% for its first annual dip in three years, and for the sharpest slump since 2015.
But some analysts think that if the U.S. inflation theme remains strong through 2022, then gold could even retrace 2020’s record highs above $2,100 — a peak which, incidentally, came on the back of worries about price pressures as the United States began its biggest budget deficit with the onset of the pandemic.
“Given the calls for even more rate hikes this year than markets are pricing in, not to mention larger individual increases than we've seen for many years, perhaps we are seeing some inflation hedging from traders that don't think central banks are doing enough to bring price pressures down,” said Craig Erlam, analyst at online trading platform OANDA.