FXStreet notes that investors are sounding the alarm over inflation, fearful that the Fed's Average Inflation Targeting framework along with a greater focus on full employment may lead to a policy error. The reality is more nuanced, with three key scenarios emerging, Daniel Ghali, Commodity Strategist at TD Securities suggests.

“Inflation is not transitory and the market will force the Fed's hand. This scenario plays into recent fears, as the market pulls forward future rate hikes, weighing on risk assets. Gold's bull market would be likely to die.” 

“Inflation is not transitory, but the Fed is behind the curve. During this time, gold would ultimately surge along with inflation-hedging assets, particularly energy and industrial commodities.”

“Inflation is transitory and the Fed stays on message. Here, inflation risk is nearly peaking, which should translate into a weaker USD as AIT prolongs a period of uber-dovish policies. This should firm both risky and real assets, including gold.”

“TD Securities sits in the transitory camp, which paints a positive picture for gold.”