Gold's not going down without a fight
(Kitco News) - It has been a frustrating couple ofmonths for gold investors as the precious metal has been unable to attract anysustainable momentum. However, it looks like the tide is turning as risinginflation makes the precious metal an attractive, undervalued hedge.
Goldprices are looking to close Friday near an eight-week high above$1,800 an ounce. This is the first time since late September that the preciousmetal has ended the week above what has been a solid resistance point.
The rally ingold comes after the U.S. Labor Department said that 531,000 jobs were createdin October, solidly beating expectations. However, according to someanalysts, markets appear to be focusing on wage inflation.
The report said that wages have increased 4.9% in the last 12 months. Accordingto some economists, this trend will continue as companies are forced to raisewages to attract new workers.
Not only are price pressures growing, but the Federal Reserve appears to becontent to remain behind the inflation curve. Wednesday, as expected, the U.S. centralbank announced that it will reduce its monthly bond purchases.However, Federal Reserve Chair Jerome Powell also said that this is not thetime to raise interest rates.
With the Federal Reserve not looking to raise interest rates anytime, we canexpect that with rising inflation pressures, real rates will start to fall,adding to the already positive environment for gold.
But it's not just the Federal Reserve that is not ready to raise interest. The Bank ofEngland was the biggest surprise in central bank news as it did not raiseinterest rates on Thursday. A rate hike had been telegraphed by theBoE and markets had fully priced in the move and were sorely disappointed.
Looking at the big picture, it makes sense that central banks are not in ahurry to raise interest rates because that won't begin to solve the currentinflation crisis. Economists have noted that the global supply crunch isdriving prices.
"Tightermonetary policies won't solve the backlog in the Ports; it won't bring newmicrochips online," Robert Minter, director of investment strategy atabrdn (formerly Aberdeen Standard Investments). "All they aregoing to do is create a new hurdle to grow cap-ex when it is actually needed.Federal Reserve policies can't fix supply-side issues."
Finally, to bring cryptos into the mix, the historic rally in cryptocurrenciesis added to the wage inflation and labor market shortage.
A Civic Science poll showed that 4% of 6,471 respondents resigned from theirjobs in the past 12 months, citing "financial freedom" due to theircrypto investments.
Another 7% of the respondents answered that they knew someone who had quittheir job because of that specific reason.
By Neils ChristensenFor Kitco News
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