Gold prices surged yesterday after the release of the US CPI data for March. The precious metal could rise even further, as high inflation continues to give support to the asset.
Yesterday's long-anticipated US inflation data indicated that consumer prices increased in March by 8.5% year-over-year, up from 7.9% in February.
Geopolitical tensions have propelled inflation to the highest level since January 1982.
In response to Russia's war against Ukraine, Western countries have imposed sanctions against Moscow. The economic impact of these measures pushed up prices of various categories of goods.
Gasoline prices jumped by 18.3% in March, while food increased by 1%.
Gold, which is considered to be a hedge against inflation, jumped by 1.4% or $27.90, finishing yesterday's session at $1,976.10 per ounce.
The asset made gains for the fourth straight trading session. The gold market's uptrend continues, despite the prospects of more aggressive Fed policy.
According to the FOMC March meeting minutes, which were published last week, the Federal Reserve was ready to hike interest rates by 50 basis points, if high inflation persisted or even increased.
The current inflationary shock has put the US central bank into a difficult position, VanEck's portfolio managers Joe Foster and Imaru Casanova noted.
"The Fed has to navigate in choppy waters, made even rougher by the ongoing war. It needs to be aggressive enough to have a real chance to combat inflation, but careful not to launch the economy into a recession. Both persistent inflation and/or a recession would be positive for gold," the analysts said.
Most analysts believe the US regulator would remain indecisive. The Fed would be hesitant to take firm steps in any direction, and this indecisiveness would help gold hit new highs.
The precious metal could also find support in geopolitical tensions. Yesterday, Russian president Vladimir Putin said the war in Ukraine was far from over.
Putin stated the peace talks with Kyiv reached a dead end and vowed to continue the war until Russia met all its aims in Ukraine.
If the war continues, Western countries would likely impose new sanctions against Russia. As a result, global central bank reserves could be impacted.
"According to BGM Group, gold represents less than 1% of global financial assets, and a relatively small percentage of the total reserves of several large economies. A relatively small increase in the percentage of global financial assets allocated to gold, from, say, just under 1% to 2%, could see demand double - and with it, the price of gold," Foster and Casanova noted.
