Gold heads for biggest monthly gain since July on inflation bets

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Gold headed for the biggest monthly advance since July, with inflation risks in focus ahead of key US jobs data due later this week that will offer clues on the economic recovery.

Some Federal Reserve officials have said that recent price pressures are to be expected as the economy reopens amid pent-up demand, and should prove temporary as supply glitches abate. The PCE price index - which the Fed uses for its inflation target - rose 3.6% from a year earlier, the biggest jump since 2008.

Bullion has erased its 2021 losses, and is one of the best-performing metals in May, amid signs of rising inflation and a potentially uneven economic recovery due to the resurgence in coronavirus cases in some countries. Investor interest has also returned, with hedge funds and other large speculators boosting their net-long position in gold to the highest since early January, while holdings in bullion-backed exchange-traded funds have climbed in May following three straight months of declines.

“It’s been a great month for gold price performance for a number of reasons - a weaker US dollar, slightly lower bond yields and a surprise CPI print in the US started to spark inflation fears,” said John Feeney, business development manager at Sydney-based bullion dealer Guardian Gold Australia. “There is also growing concern over a new wave of Covid in Southeast Asia, which is adding to investors fears around a slower global recovery.”

Spot gold was last trading at around $1,905 on Monday morning, and is up 7.8% this month. Prices climbed to $1,912.76 last week, the highest since January 8. Silver, palladium and platinum all advanced. The Bloomberg Dollar Spot Index headed for a second straight monthly drop.

The US nonfarm payrolls report scheduled for release on Friday augurs a pivotal moment for investors to assess whether surprisingly tepid job gains seen last month were a momentary blip or the start of something more persistent.

“With gold breaking above the $1,900 level, there is a clear bullish momentum with precious metal demand right now,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “A weak nonfarm payrolls number this Friday may jolt gold prices toward the $1,975 level.”

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