Gold Soars to 5-Month Highs as Fed Remains Dovish Despite Rising Inflation

Gold inched to fresh highs in early trading on Tuesday, reaching the highest levels since January 8th. The yellow metal has been boosted by the unwillingness of the Federal Reserve to change its loose monetary policy despite inflation pressures. Fed officials have stated that they expect price pressures to be transitory and monetary stimulus to continue for some time.

The Commerce Department reported on Friday that the core personal consumption expenditures (PCE) price index, rose 3.1% from a year ago, higher than market expectations for a 2.9% rise. The figure marked the largest rise since 2008. The PCE price index is the Federal Reserve’s preferred gauge of inflation. Gold is often used as a hedge against inflation and benefits in an environment of rising prices.

Meanwhile, the US dollar weakened against its rivals with the dollar index sitting near key lows. When the US dollar falls, it makes gold cheaper for buyers in other currencies.

The market now eyes the US employment report due for release this Friday. After last month’s disappointing jobs data, investors will be looking for clues on the state of the economic recovery. Further weak jobs figures would support gold and pressure the US dollar.

Looking at the gold daily chart above we can see the double bottom pattern that formed in March and the subsequent breakout above the $1,756 level. Gold bulls now look to the $1,958 level, which is the yearly high reached on January 6th.

Elsewhere, Bitcoin, which in mid-April was trading at a record price of near $65,000, continues to hover near recent lows. Bitcoin prices collapsed in May amid concerns the cryptocurrency market will have to contend with greater scrutiny from regulators both in the US and abroad.