Inflation & Gold, the Link Between the Elements

Inflation & Gold, the Link Between the Elements

Inflation & Gold, the Link Between the Elements


The Big Q: On fueled inflation will Gold’s price soar?

The Big A: The recent US NFPs report showed that wages had jumped 2.9% in January on an annual basis. It was the best since Y 2009, which awakened investor fears of inflation.

That’s why investors awaited Wednesday’s data on consumer prices. Waiting to see the newest CPI report, which could affect the markets.

And, yes we got a Hot CPI print, which shook the markets initially, then stock prices jumped surprisingly high.

The Consumer Price Index (CPI) rose 0.5% in January, following a 0.2% increase in December.

The boost in energy prices was partially responsible for the move. But the core of the index, which excludes energy and food, also rose.

And it actually accelerated from 0.2% in December to 0.3% in January. It implies that inflationary pressures may settle in, although the rebound in apparel prices did the job here.

Over the last 12 months, consumer prices went up 2.1%, while the core CPI increased 1.8%. The growth of both indices was the same as in December.

So, no acceleration there. Therefore, given the unchanged annual inflation rate, the fears of inflation may be overdone.

Investors, however, focused on the monthly dynamics, as the January numbers marked the biggest increase in 5 years, adding to the recent worries about rising inflation.

The Big Q2: How did Gold react?

The Big A2: Gold ended a day with huge gains.

But, let us look at the chart below. It displays Wednesday’s New York Gold prices, hour after hour.

New York Spot Gold Price on 13 February 2018.

There was a sharp decliner immediately after 8:30a EST, and that was Gold’s initial reaction to the CPI report.

Then price of Gold reversed moving quick above 1,350.

Gold is a safe haven.

It started to climb Wednesday after the stock market volatility increased a bit. But, stocks ultimately finished higher on Wednesday and the CBOE Volatility Index, aka VIX, fell.

Ultimately, Gold is a bet Vs the USD. And the Buck is in a downward trend, and hanging near 3 year lows.

Further, the weak data on US retail sales also supported the Rally in Gold.

Initially, on Wednesday traders feared that the Fed would be unable to ignore higher inflation and would tighten its interest rate hike outlook for this year, stated and 3X.

But after, traders and investors decided that the CPI report would not radically change the Fed’s hiking stance.

The Fed is always and will always remain behind the curve, so when the Fed lags Gold responds positively.

That then begs the Key Q: Is Gold an inflation hedge?

The Key A: The inflation rate is not the issue, the Fed’s position Vs it is.

Gold soared on Wednesday, rose Thursday and finished flat to unchanged on Friday, finishing the week at 1,355.80 oz. This indicated that suggests that the Fed will stay behind the curve.

If the Fed was aggressive traders would buy USDs. And since it is not aggressive in here there is room for further upward moves in the price of the precious Yellow metal.

As the USD continues to weaken, Gold will continue to strengthen.

I follow Gold daily, you can too here.

Have a terrific President’s Day weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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