A gold ingot in Russia. Picture: BLOOMBERG/ANDREY RUDAKOV
A gold ingot in Russia. Picture: BLOOMBERG/ANDREY RUDAKOV

Bengaluru — Gold prices extended a rally to hit a two-month high on Monday as investors held onto the view that central banks would keep interest rates low for the time being, with focus turning to key inflation data due later in the week.

Spot gold rose 0.1% to $1,818.99 per ounce by 6am, having hit its highest since September 7 earlier in the session. US gold futures gained 0.2% to $1,820.10.

The US Federal Reserve last week stuck to its view that inflation would prove “transitory” and likely not require fast rate hikes, while the Bank of England confounded expectations by standing pat on interest rates.

That was followed by European Central Bank policymakers on Friday saying inflation would likely ebb next year, suggesting conditions for a 2022 interest rate hike, which markets have priced in for October, will not be met.

Analysts said a better-than-expected US payrolls report on Friday was unlikely to change the Fed’s dovish stance, with market participants now focusing on Wednesday’s key consumer price index reading.

“Inflation data will have to be markedly above expectation for any sort of jolt back into the fear of higher interest rates, but as long as it comes out in line with or slightly above expectations, I don’t think anybody will panic,” IG Markets analyst Kyle Rodda said.

Rodda said a break above $1,830 could drive a rally towards $1,900 in gold, though it would likely trend lower in the long term as central banks eventually tighten policies to control high inflation.

Easy monetary policies to spur economic growth during the Covid-19 pandemic have propelled gold prices to new highs over the last two years, as near-zero interest rates lower the opportunity cost of holding non-yielding bullion.

Spot silver rose 0.2% to $24.22 per ounce. Platinum gained 0.1% to $1,035.95 and palladium climbed 0.5% to $2,044.89.

Reuters

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