Gold Dips Slightly, Remains High as Inflation and War Lift Demand

Employees process ingots of 99.99 percent pure gold at the Krastsvetmet nonferrous metals plant in the Siberian city of Krasnoyarsk, Russia, on Nov. 22, 2018. Reuters

Gold futures dipped on April 14 after five weeks of consecutive gains, but rising inflation and safe haven demand driven by the Russia–Ukraine conflict have kept the precious metal on track for a second consecutive weekly gain, up about 1.2 percent.

U.S. gold futures declined 0.6 percent to $1,973.30 an ounce, while spot gold fell 0.5 percent to $1,967.91 per ounce by noon on April 14, after logging its fifth-straight gain on April 13 and posting its highest close since March 11.

Meanwhile, the dollar rose 0.7 percent, making gold more expensive for overseas buyers, and U.S. treasury yields this week have pulled back from three-year highs.

Gold is often held as a hedge against inflation and global shake-ups in the market, but interest rate hikes tend to raise the opportunity cost of holding nonyielding bullion.

“One of the factors that has lent buoyancy to gold in recent days has been strong buying interest on the part of ETF (Exchange Traded Fund) investors,” said Commerzbank analyst, Daniel Briesemann.

“We believe this is due to news about the Ukraine war—Russia appears to be preparing to launch a major offensive in the east of the country—that is generating considerable demand for gold as a safe haven,” he concluded.

Spot silver was also down 1.2 percent to $25.41 per ounce and platinum fell nearly 1 percent to $977.02, while palladium rose 1.6 percent to $2,351.47.

Central banks around the world are struggling to fight record high inflation by adjusting policies in a rapidly changing situation.

In the United States, with inflation at 8.5 percent, the likelihood that the Federal Reserve will raise rates by a half percentage point in May is a “reasonable option” for the central bank, said New York Federal Reserve President John Williams, who also said he supports such a move.

“I do think from a monetary policy point of view, it does make sense for us to move expeditiously towards more normal levels of the federal funds rate, and also move forward on our balance sheet reduction plans,” Williams said.

He said that the Fed should get true interest rates—nominal borrowing costs minus the expected inflation rate—back up to a more normal level by 2023.

The cost of wholesale goods and services in the United States jumped 1.4 percent in March 2022, while wholesale prices over the past year have climbed 11.2 percent, said the Department of Commerce on April 13.

The Bank of Canada decided to raise its interest rates by 50 basis points, or 0.5 percent, to 1 percent on April 13.

In contrast, the European Central Bank’s policy stance remains unchanged after announcing on April 14 that it would stick to its plan to dial back stimulus in 2022 and end net asset buys under its asset purchase program by the third quarter, a less aggressive move compared to other central banks.

Reuters contributed to this report.