Gold price has room to run to $1,900 after inflation rose to its highest level in three decades
(Kitco News) -The gold market is seeing new bullish momentum after U.S.inflation data rose to its highest level in more than three decades, and someanalysts are looking for a move back to $1,900 an ounce in the near term.
According to some analysts, gold is catching a new bid asinflation pressures ramp up, raising concerns that the Federal Reserve will bebehind the inflation curve.
"Inflation is here and it's only going to get worse,"said Bob Haberkorn, senior commodities broker with RJO Futures. "There isa major concern that the Federal Reserve is limited to what it can do to stopinflation from rising. There is a real fear among investors that the Fed will losecontrol."
The latest inflation data pointed to broad-based increases inconsumer goods. Food was up 5.3% from a year ago - the biggest increase sinceJanuary 2009. Gasoline prices surged 6.1%, marking the biggest gain sinceMarch.
The rise in inflation comes as U.S. consumers start their holidayshopping and prepare for Thanksgiving.
Helping to support gold's breakout through critical resistance at$1,835 has been a drop in real interest rates. Following the latest ConsumerPrice Index data, real yields on 10-year notes dropped to a record low of-1.235%.
Along with the drop in real yields the break-even rate, thedifference between nominal 10-year bond yields and Treasury Inflation-ProtectedSecurities rose to 2.64%. Analysts note this indicates that bond markets arepricing in even more inflation risk.
While off their highs, gold prices last traded at $1,858 anounce, up 1.5% on the day. The precious metal is currently trading at afive-month high.
Haberkorn added that he expects that this is just the start ofgold's move higher. He said that his next target for gold is between $1,900 and$1,920.
"If gold is going to rally, it is because of this newinflation fear," he said.
Colin Cieszynski, chief market strategist at SIA WealthManagement, said that he also sees gold prices pushing to $1,920.
"This was a significant breakout for gold, and there is notmuch between here and $1,900," he said.
Cieszynski added that not only did gold break a significantresistance level, but it did so even as the U.S. dollar has pushed higher. TheU.S. dollar index is currently trading near a one-year high back above 94.50points.
"The fact that gold can break out when the U.S. dollar israllying means that it has the momentum to move higher," said Cieszynski.
Darin Newsom, president of Darin Newsom analysis, said that he isalso looking for gold to push higher in the near term. He added that there aresigns that the U.S. dollar is topping out, which will benefit all majorcommodities.
"I'd look for Dec gold to possibly test that old group ofhighs, roughly the $1,875 to $1,915 range. That means the contract looks tohave limited intermediate-term upside potential at this time," he said."Weekly stochastics have moved above the overbought level of 80%, meaningbuying interest could start to slow, but we are seeing no sign of a bearishreversal at this point. That could be a couple of weeks away yet."
While gold prices have room to move higher, some analysts notedthat there is some initial resistance at $1,870 an ounce.
By Neils ChristensenFor Kitco News
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