Gold prices jumped to a seven-week peak on April 16 boosted by softening U.S. Treasury yields and a weaker dollar, and underpinned by inflationary worries after higher-than-expected consumer prices data in the United States.
Gold was up 0.8 percent to $1,779.07 per ounce on April 16, after touching $1,783.55, its highest since February 25.
The bigger-than-expected rise in U.S. inflation lifted gold, which is seen as a hedge against rising prices.
U.S. consumer prices rose by the most in over 8-1/2 years in March, triggering what many analysts expect will be a brief period of higher inflation in the world’s biggest economy.
“Continuing low to negative interest rates, joined recently by a weakening dollar, should be working in gold’s favour,” wrote Lawrie Williams, gold market commentator with bullion dealer Sharps Pixley.
“There have been warnings that the Fed (U.S. central bank) might see rising inflation rates as a trigger to raise base rates, but it has repeatedly given the impression that it will not do so – perhaps unless inflation really gets out of hand. The inflation rate has some way to go before this is seen as a problem by the Fed.”
Gold coin sales have jumped due to consumer fears over inflation, Sharps Pixley said. Sales of American Eagles one ounce gold coins have been strong of late, and Australia’s Perth Mint has been reporting its highest gold sales level since 2012.
Reports of strong physical demand in China and India also bolstered gold prices. Demand for gold jewellery has rebounded in India, where imports hit a near two-year high in March, Kitco News reported.
Gold prices are underpinned to some extent by geopolitical turbulence, such as the gathering of thousands of Russian troops near the border with Ukraine, and Chinese naval manoeuvres near Taiwan.
Gold has often acted as a safe haven during times of geopolitical uncertainty.
“The South China Sea and the Donbass region of Ukraine, remain as serious potential flashpoints for political impasses to turn into military action pitting some of the world’s superpowers against each other,” Williams wrote.
The pound had a strong first quarter of 2021, helped by a last-minute trade deal with the EU at the end of last year, and a rapid rollout of vaccines in the UK. Furthermore, expectations of negative interest rates in the UK have diminished, buoying the pound.
However, sterling has put in a softer performance since the start of April, as the progress of vaccines distribution in the U.S. and EU relative to the UK picked up.
The reopening of non-essential retail in England this week is expected to support the pound as the UK economic recovery gathers pace.
A stronger pound will benefit UK gold savers acquiring dollar-denominated bullion.
Frequently asked questions
Why did gold prices rise to a seven-week peak in mid-April?
Gold prices surged to a seven-week peak on 16 April due to a combination of softening US Treasury yields, a weaker US dollar, and escalating inflationary worries. This rise was triggered by higher-than-expected consumer prices data in the United States, which saw the biggest monthly increase in over eight and a half years in March. Investors frequently turn to gold in these economic conditions because the precious metal is widely viewed as a reliable hedge against rising inflation.
Furthermore, the gold market was strongly supported by a significant rebound in physical demand from major global consumers. Gold jewellery imports in India hit a near two-year high in March, whilst Australia’s Perth Mint reported its highest sales levels since 2012. These factors, combined with strong physical demand from China, provided a robust foundation for the sudden upward movement in global gold prices.
How do geopolitical tensions affect the value of gold?
Geopolitical turbulence typically acts as a major supportive factor for gold prices because the metal is historically regarded as a safe haven asset during times of global uncertainty. When international tensions escalate, investors tend to move their capital away from riskier assets and into gold to protect their wealth from political instability and potential military conflict.
Several serious global flashpoints are currently underpinning the gold market, including the gathering of thousands of Russian troops near the Ukrainian border and Chinese naval manoeuvres near Taiwan. Market experts warn that areas like the Donbass region in Ukraine and the South China Sea remain significant zones where political standoffs could potentially escalate into military action involving global superpowers. This ongoing threat of international conflict keeps the demand for gold high, reinforcing its status as a secure investment during crises.
Will the US Federal Reserve raise interest rates due to rising inflation?
The US Federal Reserve is unlikely to raise interest rates immediately in response to the recent rise in inflation. While there have been warnings from some market spectators that rising inflation could trigger a rate hike, the central bank has repeatedly indicated that it will not rush to raise base rates. Experts suggest that the Fed will maintain this stance unless inflation truly gets out of hand.
According to gold market commentators, the US inflation rate still has some way to go before the central bank views it as a serious problem. Low to negative interest rates are expected to continue for the time being, which, alongside a weakening US dollar, should continue to work in gold’s favour. This monetary policy environment encourages investors to look towards hard assets like gold to preserve their purchasing power.
What is causing the surge in physical gold coin and jewellery sales?
The surge in physical gold sales is primarily driven by mounting consumer anxiety over rising inflation and a strong rebound in demand across major Asian markets. Worries about eroding purchasing power have prompted a significant jump in retail gold coin sales. For instance, sales of one-ounce American Eagle gold coins have been particularly strong, and Australia’s Perth Mint has experienced its highest level of gold sales since 2012.
At the same time, physical demand for gold jewellery has recovered dramatically in India, where gold imports surged to a near two-year high in March. This physical buying trend is also supported by strong consumer demand in China. Together, these factors demonstrate that both retail investors purchasing bullion coins and consumers buying traditional jewellery are actively seeking physical gold as a reliable store of value.
How does the performance of the British pound affect UK gold buyers?
The strength of the British pound directly impacts UK gold buyers because international bullion is priced and traded in US dollars. When the pound is strong, UK gold savers benefit because their sterling has greater purchasing power, making the acquisition of dollar-denominated gold bullion more affordable. Conversely, a weaker pound makes purchasing gold more expensive for those in the UK.
The pound experienced a strong first quarter in 2021 due to a late EU trade deal, rapid domestic vaccine rollouts, and diminished expectations of negative interest rates. Although sterling softened slightly in April as vaccine distribution accelerated in the US and EU, the reopening of non-essential retail in England is expected to support the currency as economic recovery gains pace. This potential strengthening of the pound will continue to offer financial advantages to British gold investors.
