BoC was a preview for gold investors and now we get the main event

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(Kitco News) - It's another Friday, so you knowwhat that means: another day and week where gold prices have been unable to push above $1,800 an ounce. For those of you keeping scoreat home, gold prices have tested and failed to hold $1,800 an ounce for thelast three weeks.

The growing inflation threat continues to dominate the gold market. Inflationhas been a doubled-edge sword for the precious metal because it forces centralbanks; specifically, the Federal Reserve, to take a more hawkish stance oninterest rates.

The Federal Reserve is meeting next week and there are growing expectationsthat they could start reducing their monthly bond purchase. At the same time,because of rising inflation pressures, markets are expecting the U.S. centralbank to raise interest rates by June of 2022.

We saw a preview of what could be in the cards after the Bank of Canadacame out and announced a complete stop to their bond purchase program.It also sees a rate hike by the middle of next year. The BoC also said thatinflation is a growing concern.

"The main forces pushing up prices - higher energy prices andpandemic-related supply bottlenecks - now appear to be stronger and morepersistent than expected," the BoC said in its monetary policy statement."The Bank is closely watching inflation expectations and labour costs toensure that the temporary forces pushing up prices do not become embedded inongoing inflation."

Gold, priced in Canadian dollars, lost roughly 1% following the announcement.And now it's time for the main event. The expected shift in U.S. monetarypolicy has been a millstone around gold, keeping prices below $1,800 an ounce.

However, while prices cannot rise, it still finds strong support above $1,750an ounce. Many analysts have noted that while inflation is growing, so isgovernment debt.

ThorstenPolleit, chief economist at Degussa, said in a recent report that he expectstighter monetary policy to be "cosmetic in nature" because the U.S.economy can't afford higher interest on its ballooning debt.

He warned that any material rise in interest rates would be "tantamount toan earthquake for the global economic and financial system."

Polleit added that rising inflation continues to push real interest rateslower, which is a positive environment for gold. But for now, we have to waitto see what show the Fed will put on.

That is it for this week. Have a great weekend.

By Neils Christensen

For Kitco News

Follow neils_Cnchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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