Gold falls below $1,800

Rising dollar offsets sustained anxiety over inflation

The spot gold price fell below $1,800 per troy ounce on Tuesday afternoon, unable to remain above that threshold for more than 14 hours. 

The yellow metal had come within touching distance of a seven-week high on Monday, after multiple bodies and officials conceded that the high level of inflation witnessed in the wake of the Covid-19 crisis would continue for longer than initially thought.

A traditional hedge and a fungible store of value, gold traditionally rises during times of runaway inflation. 

Powell and Yellen

Speaking at the end of last week, Federal Reserve chair Jerome Powwell argued that the ongoing disruption to global supply chains had prolonged what he has consistently maintained will prove to be “transitory” levels of inflation above the central bank’s 2% target. 

Powell told a panel hosted by the South African Reserve Bank: “The risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation. I would say our policy is well-positioned to manage a range of plausible outcomes. I do think it’s time to taper and I don’t think it’s time to raise rates.”

Two days later, former Fed chair and current US Treasury Secretary Janet Yellen  said that inflation would only fall to target levels midway through 2022. 

Yellen told CNN: “On a 12-month basis, the inflation rate will remain high into next year because of what's already happened. But I expect improvement ... by the middle to end of next year, second half of next year."

Over the weekend, Yellen also defended her proposed tax on the unrealised capital gains of wealthy individuals, denying it amounted to “a wealth tax”. 

Amid such an environment, the dollar index against major currencies fell to a one-month low on Monday, sending gold above $1,800. 

Tuesday’s dip

Gold’s Tuesday fall below the threshold can largely be attributed to the dollar regaining some momentum. By 17:00 (BST), the greenback traded up 0.4% against the yen and 0.2% against the euro. 

At the same time, spot gold traded 0.9% lower at $1,791 per troy ounce.

Further reading: Gold continues to slide despite inflation anxiety

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