By Peter Nurse
Investing.com - Gold prices edged higher Friday, with the idea that the Federal Reserve will continue with a loose monetary policy for some time leading investors to see value in the yellow metal.
At 08:55 AM ET (1255 GMT), gold futures on New York’s Comex gained 0.5%, to $1,748.35.
“Bullion has risen about 2.5% this week, after three weeks of declines driven by improving sentiment regarding the coronavirus and an uptick in equities,” SP Angel said.
“The increase in the price of gold this week could be due to investors viewing gold as undervalued, as there is still a huge amount of uncertainty in markets despite falling for the past three weeks.”
On Wednesday, the Federal Reserve said it would hold the benchmark rate near zero, with most officials predicting it will stay at these low levels through 2022.
Fed Chair Jerome Powell reiterated after the meeting that the central bank is committed to “do whatever we can, for as long as it takes."
A loose monetary policy helps gold’s attractiveness as such a policy is often deemed as inflationary. Gold is widely considered an inflationary hedge because it is priced in U.S. dollars, and as inflation rises and erodes the value of the dollar the cost of every ounce of gold in dollars will rise.
However, further gains may be tricky, according to Capital Economics, with prices likely to end the year at $1,600 an ounce, around $150 below the current level.
The main reason for such a bearish outlook is the argument that fears of runaway inflation are premature in the short and medium term, said Capital Economics commodities economist James O’Rourke.