There are still two factors that have driven the recent rise in gold prices.Inflation continues to rise. Reports show that inflation is spiraling. Geopolitical tensions are persisting. During the US session, the US announced that Russia was continuing its troop buildup near Ukraine's borders.A modest tailwind was provided by the weakness of the US dollar. The USD index has declined by 0.19% and is trading at 96.85:
The US dollar weakened due to the publication of the minutes of the last FOMC meeting, which showed little change from the last statement and press conference.
The minutes did not reflect hawkish rhetoric but were perceived as dovish. However, inflationary pressures are spiraling.
The PPI (Producer Price Index) report released by the Bureau of Labor Statistics showed that wholesale prices rose by 1% by January, bringing the year-over-year increase to 9.7%.
One cannot underestimate the importance of this report because rising costs for corporations that produce goods and services will at some point affect retail prices, which may rise soon.
Last week on Thursday, February 10, the US government released the Consumer Price Index (CPI) for January 2022. The report indicates that the current annual inflation rate rose to 7.5%. This inflation rate marks the largest one-month increase since February 1982. The consumer price index and core CPI exceeded economists' expectations.
The next PCE (the preferred inflation index used by the Federal Reserve) report will be released on February 25. However, the December numbers, which were released on January 28, also indicate a huge increase in inflationary pressures. The PCE price index reflects changes in the prices of goods and services purchased by consumers in the United States, but excludes prices for energy and food. Meanwhile, the inflation rate relative to the PCE for December 2021 is currently fixed at 5.8%.
Geopolitical environment:
Yesterday, it became possible that the crisis could be de-escalated relying on Vladimir Putin's statements that Russia was pulling back its troops from the Ukrainian border. However, the belief that the geopolitical turmoil would abate proved short-lived. According to the New York Times, Secretary of State Antony Blinken and the head of NATO said they saw no signs of a withdrawal.
Both NATO and the United States said that they had no concrete evidence that Russia had withdrawn their forces. The US and NATO statements contradicted those of the Russian Defense Ministry, which announced further withdrawals and published a video showing a train of armored vehicles heading to mainland Russia from Crimea.
The fundamental events that pushed gold to its current eight-month high seem to be clearly driven by both the news and the bullish market sentiment toward gold as a safe haven asset. The price of gold has rallied based on fundamental data. While gold fell in price on Tuesday, yesterday's rise recouped that decline, and gold may test $1,880 again by the end of the week.
