Price of spot gold surges on inflation

Price of spot gold surges on inflation

Bars of gold are arranged for a photograph at the headquarters of YLG Bullion International in Bangkok.
Bars of gold are arranged for a photograph at the headquarters of YLG Bullion International in Bangkok.

Spot gold prices hit a four-month high at US$1,860.50 an ounce yesterday as rising inflation fears boost demand for the precious metal as a safe-haven asset.

Concerns over inflation are rising worldwide as US inflation hit a 31-year high in October at 6.2%, much above analysts' forecast of 5.9% while eurozone inflation hit a 13-year high in October at 4.1% as the bloc confronts surging energy prices.

Fears of inflation drove investors to gold and cryptocurrencies like Bitcoin as hedges against inflation. However, gold is currently the better choice because its price remained laggard while cryptocurrency prices skyrocketed this year.

After the news of the "inflation shock" emerged, the gold price instantly rose by over 10% on Wednesday night, while the domestic opening gold price yesterday jumped by about 400 baht to 29,200 baht per one baht weight.

The spot price may hit $1,900 an ounce again this year, said analysts.

US inflation has risen over five consecutive months and is expected to drive the Federal Reserve to increase the tapering of its bond purchases to higher than its original target of $15 billion per month and adjust the interest rate faster than expected.

If analysts' speculation regarding the tapering and timing of an interest rate hike is true, it will hit the stock markets around the world and cause them to correct sharply.

The only stocks that will benefit from the interest hike are commercial banks because that will mean the increase of their interest margin spreads, according to Merchant Partners Asset Management senior vice-president Prakit Siriwattanaket.

He said rising inflation is like a time bomb that stemmed from the US prolonged money injection into the economy through its quantitative easing (QE) programme which increases liquidity in the system.

The QE programme has caused stock markets and various risky assets to rally, resulting in high inflation. The US inflation rate started to rise rapidly since the country's reopening, Mr Prakit said.

MTS Gold Futures' chief executive Nattapong Hirunyasiri agreed that rising global inflation is caused by the money injection but noted that it's quite unusual that the US dollar has not depreciated as much as he expected while inflation increased sharply.

However, if inflation continues to rise he said the gold price will hit a new high in the short term. The resistance price will be at $1,900 an ounce from its peak last year of $2,070, and the domestic price will be around 30,200 baht per one baht in weight.

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