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Yesterday, gold closed in the red for the first time after an 8-day rally. Analysts say that investors rushed to lock in profits after gold had printed the strongest weekly gain in 6 weeks.
The precious metal closed the last trading week with a solid 2.8% advance. This is the strongest weekly gain since early May.
No wonder that investors rushed to cash in profits at the beginning of the new week. Massive profit taking pushed gold prices down.
On Monday, gold logged a 0.1% downtick, having shed $1.90. As a result, gold closed on the New York COMEX at near $1,866.60. This is the first decline of the gold price over 8 recent sessions.
The yellow metal was trading higher for 7 days straight. So, it made the second longest rally since a 9-day bullish run that completed on July 29, 2020. The gold uptrend was encouraged by mounting inflationary pressure.
Last week, the market got to know the US CPI for October. The annual rate of consumer inflation in the US surged to 6.2% in October from 5.4% a month ago. The fresh CPI is three times higher than the 2% target set by the Federal Reserve. Besides, it has been the sharpest inflation increase since November 1990.
Experts say that such an abrupt inflation spike was fueled by the ongoing crisis in global logistics chains and a related increase in demand worldwide. These factors are to blame for the situation that inflation not just zoomed but ran out of control.
All in all, soaring inflation has become the global trend. In this context, gold entered the full-blown race and has already hit a 5-month high.
The precious metal is traditionally viewed by investors as a safe haven asset to protect savings from high inflation. Thus, the alarming CPI reading boosted demand for the yellow metal.
At the same time, investors are worried that the US Fed would begin its struggle against soaring inflation through raising the official funds rate. This scenario is extremely unfavorable for gold but beneficial for the US dollar and yields of US Treasuries which also rose last week.
Meanwhile, the US dollar index climbed 0.3% yesterday. Besides, yields of US Treasuries rose to 1.614% from 1.583% on Friday. The assets found support from a report by the Federal Reserve Bank of New York. It indicated that manufacturing sector is getting into gear.
The New York Fed Empire State manufacturing index jumped to 30.9 in November from the modest 19.8 in October. The actual score is better than expected as the consensus suggested the value of 22.1.
All in all, the US dollar index's rally and rising Treasury yields put a strain on gold prices on Monday. Nevertheless, bullion is still trading at the strongest levels of June. Nowadays, investors are anticipating public remarks by several Fed officials and policymakers of other major central banks such as the ECB, the Bank of England, and the Reserve Bank of Australia. They are due to speak in the coming days.
President of New York Federal Reserve Bank John Williams is going to speak on Wednesday. He advocates for the dovish monetary policy.
If the policymakers again labels high inflation as transitory that does not require an urgent Fed's interference in monetary policy, gold will have a fair chance to resume its growth.
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