The gold rally may have legs as the Federal Reserve (Fed) could soon become more tolerant of above-target inflation.
According to Wall Street Journal (WSJ), the US central bank is planning to abandon the long-followed strategy of pre-emptive interest rate hikes to head off higher inflation and take a more relaxed view by allowing periods in which price pressures run slightly above the 2% inflation target,
Gold, a perceived inflation hedge, rose to a record high of $1,988 early Monday. The yellow metal has rallied by 30% this year and is currently up over 35% from lows near $1,450 observed during March.
The Fed has poured in an unprecedented amount of liquidity into the system over the past four months to help the economy absorb shocks arising from the coronavirus outbreak and stabilize the domestic and international credit markets. Most analysts expect the massive stimulus to fuel inflation over the long run.
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