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Rising Inflation Will Boost Gold Prices Down the Road

19 Feb
inflation chart

Rising Inflation Will Boost Gold Prices Down the Road

Gold Market Discussion

Rising Inflation Will Boost Gold and Silver

Rising Inflation

The current economic outlook is anticipating inflation in the not-so-distant future, and rising inflation will boost gold and silver prices. Consumer prices are up 0.6% in January and 2.5% over the last year. Price seem to be rising at the fastest pace in about six years.

Rising inflation is to be expected over the near future. Current fiscal policy of President Trump has all the indicators to spur inflation. He has promised government spending increases on infrastructure and defense with, so far, not significant budget cut backs. This will add to the already skyrocketing budget deficit.

What this means for investors: The markets are currently seeing an exceptionally rare event where gold is rising despite a strong dollar. This is a sign that the markets and investors are anticipating rising inflation. Investors are buying gold now while prices are still relatively low. Silver is moving in tandem with gold, and can likewise be a lucrative investment for many.

Germany Is Bringing Back Its Gold Held Overseas

German gold holdings

Germany has started to repatriate much of its gold. During the Cold War when the Soviets occupied much of central and Eastern Europe, West Germany sent much of its gold out of the country to protect it in case the Soviets invaded.

There is over 3,000 tonnes of German gold out of the country. They have moved nearly 600 tonnes of it back to Frankfurt from Paris and New York, and plan to have half of the total amount repatriated by the end of the year.

What this means for investors: Germany is repatriating its gold because of instability fears surrounding the Euro. In fact, there is a significant amount of political uncertainty around the future of the EU and Europe in general. There are those who argue in Germany that they need their gold bullion within German borders to back the Deutsche mark in the event of a Euro currency collapse.

Janet Yellen on Capitol Hill This Week

Janet Yellen Capital Hill

Janet Yellen attended congressional hearings this week to discuss the economy and the possibility of future rate hikes. The Fed chair gave a hawkish impression for future monetary policy stating that the economy seemed strong enough for three rate hikes this year.

Yellen’s speech raised trader expectations of a rate hike to come in March this year. Republicans on the House Financial Services Committee sparred with Yellen over the extent of financial recovery that the Fed’s monetary policy experiment actually brought about.

What this means for investors: Gold pulled back following Yellen’s comments on a potential interest rate hike. This was to be expected because it is a non-interest bearing asset. However, it went up again during the week and finished the week just shy of $1,240.


Gold Hedge against Geopolitical Conflict

BlackRock HQ
BlackRock Headquarters

One analyst at top money management firm BlackRock Inc. is predicting that trading is not reflective enough of the geopolitical risk in the markets right now. Stocks are still riding the Trump rally, and just posted the longest rally in three years this week. This is happening though while global uncertainty gauges this year have climbed to the highest level on record.

What this means for investors: Some of these uncertainty levels are being driven by unknowns around what Brexit terms will look like, a looming debt crisis in Greece, potential collapse of the Euro, and political uncertainty in the U.S. around foreign policy. The stock rally is partially based on hope of tax cuts, deregulation, and fiscal stimulus coming out of the Trump administration. There is still much uncertainty about timing and levels though. Meanwhile gold has rallied 8% this year so far, and is expected to rise further due to rising inflation and safe haven demand.

 

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 Here are some articles from the web discussing the topics in this week’s post:

Rising Inflation Will Boost Gold and Silver

Read Here

Germany Is Bringing Back Its Gold Held Overseas

Read Here

Janet Yellen on Capitol Hill This Week

Read Here

Gold Hedge against Geopolitical Risk

Read Here


As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at  602-955-6500 or toll-free at 877-354-4040.

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