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It has been a frustrating couple of months for gold investors as the precious metal has been unable to attract any sustainable momentum. However, it looks like the tide is turning as rising inflation makes the precious metal an attractive, undervalued hedge.
Gold prices are looking to close Friday near an eight-week high above $1,800 an ounce. This is the first time since late September that the precious metal has ended the week above what has been a solid resistance point.
The rally in gold comes after the U.S. Labor Department said that 531,000 jobs were created in October, solidly beating expectations. However, according to some analysts, markets appear to be focusing on wage inflation.
The report said that wages have increased 4.9% in the last 12 months. According to some economists, this trend will continue as companies are forced to raise wages to attract new workers.
Not only are price pressures growing, but the Federal Reserve appears to be content to remain behind the inflation curve. Wednesday, as expected, the U.S. central bank announced that it will reduce its monthly bond purchases. However, Federal Reserve Chair Jerome Powell also said that this is not the time to raise interest rates.
With the Federal Reserve not looking to raise interest rates anytime, we can expect that with rising inflation pressures, real rates will start to fall, adding to the already positive environment for gold.
But it's not just the Federal Reserve that is not ready to raise interest. The Bank of England was the biggest surprise in central bank news as it did not raise interest rates on Thursday. A rate hike had been telegraphed by the BoE and markets had fully priced in the move and were sorely disappointed.
Looking at the big picture, it makes sense that central banks are not in a hurry to raise interest rates because that won't begin to solve the current inflation crisis. Economists have noted that the global supply crunch is driving prices.
"Tighter monetary policies won't solve the backlog in the Ports; it won't bring new microchips online," Robert Minter, director of investment strategy at abrdn (formerly Aberdeen Standard Investments). "All they are going to do is create a new hurdle to grow cap-ex when it is actually needed. Federal Reserve policies can't fix supply-side issues."
Finally, to bring cryptos into the mix, the historic rally in cryptocurrencies is added to the wage inflation and labor market shortage.
A Civic Science poll showed that 4% of 6,471 respondents resigned from their jobs in the past 12 months, citing "financial freedom" due to their crypto investments.
Another 7% of the respondents answered that they knew someone who had quit their job because of that specific reason.
By Neils Christensen
For Kitco News
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