Gold Regains Strength: Why $1,803 is The Key For More Upsides

Inflation fears have fueled speculation that the Federal Reserve will accelerate monetary tightening to cool rising prices and provide some support for the yellow metal. However, there were still expectations of high inflation figures, which kept some recovery potential for gold and broke its five-day bearish streak. However, gains remained muted as the Fed pursued its ongoing tapering, which would raise real rates. The opportunity cost of gold rises after an interest rate hike because it raises bond yields, despite the commodity being considered a hedge against rising inflation.

A growing number of Fed policymakers have indicated that the end of the Fed’s bond-buying program will be accelerated if high inflation persists and that interest rates will be raised more quickly. On Wednesday, the minutes of the Federal Reserve meeting were released, which showed that the bank was in favor of speeding up the process of asset tapering. This should have added selling pressure on gold, but the precious metal held its ground and kept gaining traction on the back of high inflation expectations.

Furthermore, some of the gains in precious metals could also be attributed to the news that suggested discovering a new variant of the coronavirus in South Africa. On Thursday, a scientist from South Africa expressed concern about a new COVID-19 variant that was detected in small numbers. They were working to understand its potential implications.

According to South African Health Minister Joe Phaahla, the variant was behind an exponential increase in COVID infections as it evaded the body’s immune response and was more transmissible than other variants. This news raised concerns about this variant spreading and raised safe-haven bets for gold, which pushed its prices higher on Thursday.