(Kitco News) – Gold futures hit their highest level in more than five months Wednesday on continued safe-haven buying after the recent freefall in equities and speculation that the Federal Reserve will slow its pace of monetary tightening.
Around 9:50 a.m. EST, Comex February gold was up $5.40 to $1,277.20 an ounce and peaked at $1,280.70, the contract’s most muscular level since July 9. March silver rose 25.5 cents to $15.075 and got as high as $15.15, its strongest level since Aug. 28.
The metals were up even though the U.S. dollar index likewise climbed, trading up 0.278 point to 96.285.
“With the overall concern about the economy, we’ve seen the safe-haven play come back into vogue,” said Phil Flynn, senior market analyst with at Price Futures Group.
Further, he cited concerns about the recent declines in the U.S. stock market.
“The criticism of the Federal Reserve makes some traders speculate the Fed won’t raise rates any time soon,” Flynn added.
He was referring to harsh criticism of Fed policymakers by U.S. President Donald Trump, who has broken with protocol by lambasting the Fed repeatedly.
Lower interest rates help gold several ways. First, they undercut the U.S. dollar, and precious metals tend to move inversely to the greenback. Lower rates also reduce gold’s so-called “opportunity cost,” which is the lost income from buying a non-yielding asset like gold, which does not pay interest income.
Daniel Pavilonis, senior commodities broker with RJO Futures, cited yet another reason why Fed policymakers may become less aggressive with monetary tightening.
“We saw such a stock-market correction that maybe the Fed will hold off raising rates for a while,” he said.
And that, he continued, could mean more inflation than would otherwise occur. Gold is often bought by investors as an inflation hedge.
Pavilonis listed the area from $1,300 to $1,307 as the next key upside chart resistance for gold, commenting that the metal could accelerate to the upside if it breaks though here.
By Allen Sykora
For Kitco News