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Gold price: Investors flock back to ETFs on inflation concerns

Image from Grundeinkommen.

Gold prices dipped on Tuesday as investors await a key US inflation report due later this week for clues on when the Federal Reserve may begin to talk about tapering its asset purchases.

Spot gold declined 0.4% to $1,892.89 per ounce by 1:50 p.m. ET after rising by 1.5% over the past two days. US gold futures were down 0.2% to $1,895.40 per ounce.

[Click here for an interactive chart of gold prices]

Despite the latest comments from Treasury Secretary Janet Yellen welcoming higher interest rates, which pushed US bond yields higher, gold is still holding close to the $1,900 level amid rising price pressures and speculation that central banks may eventually pare back stimulus measures.

Thursday will bring the European Central Bank’s decision as well as the US CPI report, which will be one of the last major economic indicators before the Fed’s next policy meeting.

“If financial markets are already in the summer doldrum mode, that could mean gold prices could steadily rally over the next couple of months,” Edward Moya, a senior market analyst at Oanda Corp., told Bloomberg.

“Even if the upcoming inflation report later this week doesn’t show a significant deceleration in pricing pressures, it probably won’t change anyone’s opinion on inflation at the Fed. Wall Street should see investor demand improve for safe havens such as gold, as global tax and inflation concerns intensify.”

Gold ETFs

Fueled by tailwinds from strong price performance and ongoing inflation concerns, demand for gold has improved, with investors returning to gold-backed ETFs.

Earlier in the week, the World Gold Council reported that gold ETFs saw inflows of $3.4 billion in the month of May after three consecutive months of net outflows. Globally, gold-backed ETF assets under management now stand at $222 billion, just below 9%, closely nearing the unsurpassed August 2020 high.

“Gold remains a promising asset for investors as market behavior continues to be controlled by inflationary pressures coupled with the US dollar diluting in strength and lower real yields, further seen by the increase in gold price,” Adam Perlaky, senior analyst at WGC, said in the report.

In a survey prepared by the Council, central banks around the world are anticipating an increase in gold reserves in the next 12 months, with most citing “uncertainty over economic recovery from the covid-19 pandemic” as their reason for buying gold.

(With files from Bloomberg)