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Gold Spikes As Investors Weigh Federal Reserve’s New Inflation Approach

August 28, 2020 at 16:35 by Andrew Moran

Gold futures are soaring to close out the trading week as investors parse the Federal Reserve’s new inflation approach. While the yellow metal slumped following the central bank’s historic policy shift, gold prices wiped out those losses and are now poised for their first weekly gain in three weeks.

December gold futures surged $46.60, or 2.41%, to $1,979.20 per ounce at 16:19 GMT on Friday on the COMEX division of the New York Mercantile Exchange. Gold is on track for a five-day gain of about 1.5%, lifting its year-to-date jump to 30%.

Silver, the sister commodity to gold, is also rallying to finish the trading week. September silver futures advanced $0.71, or 2.63%, to $27.735 per ounce. The white metal is getting ready to post a huge 3% weekly boost, bringing its YTD increase to 55%.

A few factors are contributing to the precious metals’ meteoric ascent on Friday.

The greenback is sliding again as the US Dollar Index, which measures the buck against a basket of currencies, tumbled 0.78% to 92.28, from an opening of 93.02. The index will suffer another weekly blow of 1%, adding to its 2020 decline of 4.25%. A lower buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.

On Thursday, Fed Chair Jerome Powell delivered prepared remarks during the virtual Jackson Hole symposium. The historic policy transition would involve the Eccles Building adjusting its policy of average inflation targeting. Under this new plan, the Fed would no longer raise interest rates to fight inflation, choosing to allow inflation to climb above the 2% target. This would result in ultra-low interest rates remaining unchanged for a long time to come.

The decline in gold and silver prices surprised analysts, but market observers explained that traders were taking profits and attempting to interpret the Fed’s decision. The consensus is that with low rates and unlimited monetary stimulus, gold has a bullish future.

Others note that the metals market is finding modest support from Japanese Prime Minister Shinzo Abe stepping down from his post amid a deteriorating health condition.

In other metal commodities, October copper futures tacked on $0.0305, or 1.02%, to $3.021 per pound. October platinum futures added $16.30, or 1.76%, to $944.40 per ounce. October palladium futures picked up $31.40, or 1.43%, to $2,221.89 an ounce.

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