Gold holds near 3-month high as inflation expectations rise

Bond market expectations for the pace of inflation over the coming half decade surged on Monday to the highest level since 2006.

Gold held near the highest level in three months as investors weighed rising inflation expectations and comments from Federal Reserve officials for clues on monetary policy going forward.

Spot gold was steady at $1,836.01 an ounce by 10:09 a.m. in London after climbing as much as 0.8% to $1,845.51 on Monday, the highest since Feb. 11. (Reuters)

Bond market expectations for the pace of inflation over the coming half decade surged on Monday to the highest level since 2006. The jump in the five-year breakeven rate comes amid a run-up in commodities and adds to a longer-term uptick in inflation bets that’s been fueled by improving prospects for growth and pandemic-related stimulus measures.

“Inflation expectations are already elevated and will move lower,” said Georgette Boele, senior precious metals strategist at ABN Amro NV. Gold’s “rally is running out of steam just below the 200-day moving average at $1,850 an ounce.”

Bullion posted the biggest weekly gain since November last week after a report showed a surprise slowdown in U.S. job growth, supporting the case for continued economic stimulus and low interest rates. Traders will be watching for the U.S. CPI report due Wednesday, which is forecast to show prices continued to increase in April.

Spot gold was steady at $1,836.01 an ounce by 10:09 a.m. in London after climbing as much as 0.8% to $1,845.51 on Monday, the highest since Feb. 11. Silver and palladium gained while platinum was little changed. The Bloomberg Dollar Spot Index edged lower.

His confidence on the outlook for the job market was echoed by San Francisco Fed chief Mary Daly and Chicago Fed President Charles Evans, with the latter adding that the U.S. central bank will need to remain accommodative “until we really get nervous that inflation is just in excess of averaging 2% over time.”