Gold, Inflation Divorce Hands Bullion Bulls Biggest Annual Loss Since 2015 by Investing.com

Author: Barani Krishnan

Investing.com – It could have been a terrible year for inflation, but it was certainly a very bad one for gold, one of the most well-known hedges against price pressures known to investors.

Readings from the U.S. and Federal Reserve’s preferred inflation gauge — the core — both at 40-year highs, the price of gold showed its first loss in three years.

The most active U.S. gold futures contract, at $ 14.50, or 0.8%, was settled at $ 1,828.60 an ounce at New York’s Comex.

For the year, Comex gold fell 4.5% due to its biggest drop since 2015.

The slide also comes after a year-long flag of gold in 2020, which pushed bullion prices to heights above $ 2,100 an ounce, yielding 22% a year. That meeting was partly due to inflation concerns, as U.S. budget deficits began to break Covid-19 record-breaking spending records.

Gold has traditionally been touted as an anti-inflation hedge, although this argument was weakened earlier this year as prices for yellow metal fell steadily in the face of pressures from the U.S. economy, which is aggressive as a result of the coronavirus pandemic. Gold often fell at the expense of the dollar and the U.S. Treasury, as the Federal Reserve revived inflation in line with expectations of a rate hike.

“The divorce of 2021 gold inflation will certainly hurt the bulls in the space that were expected to pursue love affairs between the two last year,” said Phillip Streible, a precious metal strategist at Chicago’s Blueline Futures. “The truth is that the writing of this rupture was already on the wall with the gold sales we saw since the 3rd quarter of last year, and it was deepening until 2021.”

“That doesn’t mean the gold inflation game won’t be confirmed next year,” Streible added. “The Fed is likely to raise rates as much as it thinks next year, and if employment slows down again for any reason, gold hedging could become the issue again.

The Fed has announced a quick timetable to end the pandemic-era promotion and plans to raise interest rates before March, for the first time in two years since Covid-19 exploded in March 2020.

The Fed has said it could expect a three-year rate hike in 2022, but that will depend on keeping inflation at 2% a year and maintaining unemployment at the 4% level it defines as “maximum employment”.

It was a record 14.8% in April 2020 after the Covid-19 explosion, but fell to 4.2% last month. But the Consumer Price Index rose by 6.8% year-on-year in November, the highest since 1982.

News of the rate hike is almost always bad for gold. But if the issue of inflation remains strong, gold may still reach new highs. That’s what the space bulls tell us.