08.11.202109:57 Forex Analysis & Reviews: Gold continues impressive rally: price reaches 2-month peak

The growth of gold, which began last Thursday, continues at the beginning of the new week. Bullion is strengthening as investors continue to digest dovish statements from central banks.

Last week, the precious metal ended with an increase of about 1.8%. The most successful days for it were Thursday when it showed an increase of 1.7%, and Friday, during which the asset gained 1.3%.

At the end of the working seven-day period, quotations rose by $ 23.30, as a result of which gold not only made a long-awaited breakthrough beyond the key mark of $ 1,800 but also reached the maximum level since the beginning of September. The final price of Friday's trading was $1,816.8.

Gold rose, even despite the optimistic data from the US labor market. The report published on November 5 showed that in October the number of jobs outside agriculture increased in the country by 531 thousand (while economists assumed an increase of 450 thousand), and the unemployment rate fell to 4.6%.

The precious metal did not react with a drop to the strong statistics because the level of labor force participation remained unchanged and amounted to 61.6%, analyst Bart Melek commented on the situation.

- Labor force participation is still at a problematically low level. America is far from full employment. And I doubt that the high rates of job growth will continue over the next 6 months or a year," the expert stressed. – That is why the markets do not assess the likelihood of a tightening of the Fed's policy as inevitable. The regulator will keep its course soft for quite a long time.

This is evidenced by the dovish statements of the head of the Federal Reserve at the last monetary policy meeting, which took place last week. Jerome Powell made it clear that the central bank will expect a full recovery in the labor market before it starts raising interest rates.

Analysts believe that now the rate hike forecast for June looks unlikely. Against this background, investors' interest in the yield of 10-year US government bonds is cooling. On Friday, for example, the indicator collapsed below 1.47%. This factor became the main catalyst for the growth of gold at the end of last week.

As for the beginning of a new seven-day period, on Monday the yellow asset continues to move up. Now the main springboard for quotes is still the dovish position of central banks. Last week, not only the Fed but also other major regulators spoke out about raising interest rates.

On Friday, ECB officials announced a possible reduction in inflation next year, suggesting that the conditions necessary for an interest rate increase will not be met in 2022.

And earlier, the Bank of England announced its decision to keep the base interest rate at the current level, indicating its possible increase to 1% by the end of next year.

As the topic of rate hikes remains dominant on Monday and investors continue to evaluate the dovish comments of regulators, gold is steadily moving up. So, at the time of preparation of the material, the value of the asset increased by 0.3%, reaching $ 1,822.30.

Meanwhile, by the middle of the week, the focus of investors' attention will shift to inflation in the United States. Consumer and producer price indices will be published on Wednesday. The markets expect an increase in indicators, as a result of which the attractiveness of gold as a hedge against inflation may increase.

According to analyst Kyle Rodd, in the near future, the yellow metal has a chance to rise to $1,900, provided that it manages to break above $1,830 this week.

But the long-term outlook for bullion is not so rosy, the expert believes. Gold will take a downward route as soon as central banks begin to tighten their policies amid persistent high inflation.

- The Federal Reserve assumes that inflation will fall sharply in the second and third quarters of next year, but we fear that labor shortages, production bottlenecks, and supply chain problems may persist next year, - said analyst James Knightley.