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Gold's trading pattern got many analysts excited this week, with some even saying that hotter-than-expected inflation data was a game-changer for gold. But things didn't pan out as expected, with gold tumbling nearly $30 on Friday following a strong retail sales number out of the U.S.
So what happened?
Gold started to rally when the International Monetary Fund trimmed its global growth forecast, citing rising risks from supply chain bottlenecks, price pressures, and threats from the delta variant. The IMF said its 2021 global growth forecast is now at 5.9% from the previous estimate of 6%. The 2021 growth forecast for the U.S. was slashed from 7% to 6% due to supply constraints.
The latest data further exacerbated economic growth concerns, showing inflation returning to 13-year highs. This boosted gold to a weekly high of above $1,801 an ounce.
"This is a major reversal of trends and very positive for gold," OANDA senior market analyst Edward Moya told Kitco News. "We are starting to see the market growing nervous about the U.S. consumer. Gold is entering a period where risks now outweigh the reopening trade, and we'll see more safe-haven flows into gold."
Bridgewater Associates also warned investors that inflation will not be transitory, noting that central banks worldwide will be powerless to contain price surges without hurting the economy.
On top of that, markets digested Federal Reserve's September meeting minutes, which revealed that central bank officials are looking to start reducing their bond-buying stimulus program as soon as mid-November or mid-December, with plans to wrap up in the middle of next year.
At the end of the week, it was "massive technical resistance" at $1,800 an ounce and strong retail sales that ended up knocking gold down. Analysts told Kitco News that growth concerns need to rise for gold to break $1,800 an ounce and have a chance at re-test its all-time highs of above $2,000.
But despite Friday's selloff, bullish sentiment is still out there, especially with geopolitical tensions flaring up. And the focus is not only gold. James Anderson, CEO and Chairman of Guanajuato Silver Company, told Michelle Makori, Lead Anchor and Editor-In-Chief of Kitco News, that a weak economy, contracting production, and strong demand could push the silver price to $40 by mid-2022
By Anna Golubova
For Kitco News
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