Gold Heads for Third Weekly Gain on Inflation Concerns

(Bloomberg) — Gold headed for a third straight weekly gain as the dollar continued to trend down, with investors weighing signs of inflation and economic recovery.

Traders mostly shrugged off concerns over Federal Reserve minutes Wednesday that showed some policy makers are open to talking about tapering bond purchases, focusing instead on the U.S. central bank’s accommodative stance. Meanwhile, applications for U.S. state unemployment insurance fell last week to a fresh pandemic low, signaling steady improvement in the job market as remaining business restrictions are lifted.

Bullion is trading near the highest level in more than four months amid rising inflation expectations, static Treasury yields and concerns over the resurgence of coronavirus cases in some countries. Holdings in exchange-traded funds backed by the precious metal have resumed an uptrend. On Friday, it edged lower as the dollar strengthened slightly.

“Higher U.S. inflation and lower government bonds yields have lifted gold back to USD 1,870/oz,” UBS AG analysts including Wayne Gordon wrote in a note. “Still, we expect fading inflation surprises, higher U.S. government bond yields, rising vaccination pace to reduce uncertainty and the U.S. dollar to peak.”

The bank kept it’s end of year forecast for gold unchanged at $1,600 an ounce.

Spot gold added 0.3% to $1,883.64 an ounce by 1:25 p.m. in London. Prices climbed to $1,890.13 on Wednesday, the highest since Jan. 8, and are up 2.2% this week. Silver rose, while platinum and palladium edged lower. The Bloomberg Dollar Spot Index edged higher after dropping 0.4% on Thursday.

Bullion may have also been supported after the extreme volatility in cryptocurrencies this week. Bitcoin, which is often touted as a replacement for gold due to its inherently limited supply, has fallen 7.1% this week.