This week in Gold – 05/11/2021

Price Movements

Gold started the week trading at $1,782 per ounce. The week got off to a good start as gold edged higher throughout Monday and Tuesday. By Tuesday afternoon, the price had gained $13 per ounce. However, the remainder of the week was somewhat of a roller-coaster for gold investors as the price hit a weekly low of $1,760 by Wednesday afternoon before rallying nearly $40 to $1,798 by midday on Thursday. Despite gold’s strong upward momentum during trading on Thursday it failed to get over the $1,800 mark. On Friday, gold finally broke through strong resistance at $1,800. Gold is now looking likely to finish the week at a two-month high of $1,815.

Bank of England, The Federal Reserve and Non-farm payrolls

As the Federal Reserve concluded its two-day policy meeting on Wednesday, they announced their plans to begin to unwind its stimulus programme this month. The latest tapering plan was announced as the U.S. economy continues to contend with surging inflation. Wednesday’s announcement that it will slow bond purchases is a step toward more normal monetary policy. The Fed said it would start reducing its monthly bond purchases this month with plans to end them in 2022. It didn’t come as much of a shock to hear the Fed also reiterate their beliefs that the currently high levels of inflation are merely “transitory”. Gold gained and the dollar weakened as the U.S. Federal Reserve approved maintaining low interest rates for some time. “We think we can be patient”, Jerome Powell, the Fed’s chair, said about the path ahead for interest rates. 

The market then shifted its attention to the Bank of England’s policy meeting on Thursday. Eyebrows were raised when The Bank of England decided to leave interest rates unchanged. This news came as somewhat of a shock to the market due to the Bank of England’s hawkish tones in the recent months. The Bank’s Governor Andrew Bailey did say “it was a very close call” but decided to vote in favour of keeping UK interest rates at a record low of 0.1%. 

On Friday we learned that U.S. job growth increased more than expected in October as non-farm payrolls increased by 531,000. The unemployment rate also fell to 4.6% as it appears more Americans are more comfortable returning to the workforce as employers offer higher wages and the concerns over Covid-19 appear to be subsiding.

Overall, gold’s price got a boost as policymakers in the United States were patient about raising interest rates and the Bank of England were surprisingly more dovish than expected. Gold, which pays no interest, tends to benefit when interest rates are low as it reduces the opportunity cost of holding bullion.