Price of gold increases on the commodity market

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The price of gold on the commodity market has been increasing since last week, and continued this week, which is the 42nd one of 2021, meaning that gold is in a bull market. On 22 October 2021, at 5:55 am CET, gold futures traded on the Commodities Exchange Center (COMEX) commodity market at US$1,787.80 per troy ounce, with a daily gain of +0.33%.

According to analysts, this trading position of the gold price was mostly created thanks to the so-called “softer dollar”. Compared to its exchange value almost a month ago, the US dollar (USD) showed a higher exchange value according to the US Dollar Currency Index (DXY), and therefore the purchase of gold was not so attractive for investors outside the dollar zone. 

On 22 October, at 6:11 am CET, according to the DXY dollar index, we saw the USD at a price level of 93.72, with a daily decrease of -0.05%. It is thanks to this change in the trade trend of the exchange value of the USD that investors’ interest in gold has increased and its price has risen, along with the fact that the current price has already generated attractive weekly profits for investors.

According to the data, however, the current price of gold, despite its price increase, still shows – compared to the beginning of 2021 – a loss of -6.76%, and in the annual comparison a loss of -8.47% in the last 52 weeks. 

According to commodity market experts and especially gold market specialists, it is clear that the price of gold for decades has largely depended on the exchange rate of the USD as a so-called inverse rule, where a strong dollar discourages investors from non-dollar destinations from buying gold. This week, as the USD exchange rate began to decline, the price of gold thus gained room for growth. Another factor influencing the price of gold, apart from geopolitical events of considerable importance, is the monetary policy of the US Federal Reserve System (Fed) regarding the USD and subsequently to gold.

Renowned economists say, however, that the current price of gold does not fully reflect the situation regarding the state of inflation, which has reached an unusual increase in developed economies. Inflation in excess of 5% p.a. in the US is forcing members of the Fed’s Federal Open Market Committee (FOMC) to reconsider leaving its interest rates unchanged until the end of 2023. Fed President in Atlanta Raphael Bostic said that he expects high inflation to persist in 2022 and that the Fed should raise interest rates by the end of next year. 

Gold is often seen as a hedge against inflation, although reduced incentives and rising interest rates are pushing government bond yields up, which translates into higher costs for holding precious metals that pay no interest. According to these experts and their predictions of financial market developments, it can be assumed that the price of gold in 2021 will probably not exceed US$ 2,000 per troy ounce, as previously declared by some analysts.

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