Gold Soars To 1-Week Peak On Inflation Woes

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Gold prices rose around 0.2% on Monday as inflationary pressures counter the impact of higher yields. The U.S. benchmark Treasury yields rose after the release of robust job growth in January.

Spot gold is currently trading at $1,812.30 per ounce as of 0815 GMT.

The Labor Department reported on Friday that nonfarm payrolls increased by 467,000 jobs in January. That figure smashed economists’ forecast of only 150,000. The revised data for November and December also showed the addition of a whopping 709,000 jobs than previously estimated. In January, the unemployment rate rose slightly to 4.0%. But the labor participation increased to 62.2%, and the average hourly earnings soared by 0.7%, or an annual increase of 5.7%. It was the highest gain since May 2020.

The surging oil prices also supported the bullion by elevating inflationary pressures. Brent crude oil prices jumped to their highest level since October 2014. Adding the price pressure is the decision of OPEC+ members to increase their output only moderately. In addition, Iraq pumped well below its OPEC+ quota in January. Another member, Kazakhstan, wants to keep more of its oil at home to tackle rising fuel prices.

Another factor supporting the yellow metal is the ongoing Russo-Ukrainian crisis. The White House said that Russia could invade Ukraine within days since it already has around 70% of the military power needed for a full-scale invasion. The tensions heightened concern over oil supplies that are already tight.

Gold is generally considered as a hedge against inflation and geopolitical risks.

SPI Asset Management managing partner Stephen Innes suggested that oil prices are currently the most important components of inflation. No matter how high the Federal Reserve raises interest rates, it cannot control the inflationary pressures caused by rising oil prices.

On the technical front, DailyFX strategist Margaret Yang noted that the probability of a 50bps rate hike in March rose because of the higher-than-expected job gains in January. Some market participants are bracing themselves for 5-6 quarter-point interest rate increases this year.

Yang also said that gold prices rebounded from the trendline support and are testing resistance at $1,810. A breach of that level could push the bullion to $1,834 per ounce. She also mentioned that the MACD hovers close to the neutral point, which indicates the lack of clear price direction.

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