Gold/USD: gold exceeds $1,900, its highest point since January

Gold's recent upward movement continues as it reaches its highest level since the beginning of the year. What is driving traders back to gold?

Gold has made a strong comeback from its recent lows. After hitting a new all-time high last summer, the yellow metal dropped several hundred dollars and then found support below $1,700.

Something changed at that point, as investors began bidding on gold again. Perhaps the decline in the crypto market from its own highs was responsible for the new interest in gold. Or it could be that inflation fears led investors to allocate more of their portfolios to gold.

Whatever the reason, gold, along with other commodities, is benefiting from a weaker U.S. dollar and a strong economic recovery from the virus situation. Corn and soybean prices have reached their highest levels in over seven years. In addition, the price of lumber increased more than fivefold in less than a year, driven by a U.S. housing boom.

As a result, commodity prices have soared and U.S. inflation last month reached its highest level in 40 years. Is the recent rise in gold prices the result of rising inflation fears?

Digital asset liquidation and inflation fears - key drivers for gold

An analysis of CME futures suggests that large institutional investors may be shifting away from digital assets and back into gold. After it hit an all-time high above $2,000 last year, it corrected while Bitcoin and other digital assets continued their rally.

However, the most recent correction in the crypto space has erased much of those gains. Bitcoin has lost more than half its value, while other coins have seen even larger declines. Bitcoin futures suffered the biggest correction since last October, and the outflows from the crypto market may have turned into inflows into the gold market.

Rising inflation is another cause for concern for investors. Gold has been the traditional hedge against inflation for so long that many traders are wondering why it would be any different this time around. With the volatility of the digital asset not being favored by institutional investors, the recent rise in the price of gold could indicate return enthusiasm for the yellow metal.