Weak Inflation Not to be a Major Headwind for Gold

inflation not to hurt gold

From Birch Gold Group

This week, Your News to Know brings you the top stories involving gold and the overall economy. Stories include: Gold investors should ignore weak inflation and focus on lower real rates instead, gold and bitcoin look ready to heat up, and the world’s latest gold rush is an Italian affair.

Analysts to gold investors: Ignore weak inflation and focus on lower real rates

Although the recent reduction in global inflation could be seen as a headwind for gold, some analysts believe that the move will prove beneficial to the metal. Bart Melek, head of commodity strategy at TD Securities, notes that the impact of low inflation on real rates – which are stranded in low territory – is the key factor in determining gold’s trajectory.

The global inflation rate of 1.9% indicates weakness in economies, which will pressure central banks to maintain or increase accommodative monetary policies. The U.S. Federal Reserve is among them, and many question whether the Fed can apply an aggressive rate hiking strategy in 2018; the markets are currently pricing in a 25% chance of one rate hike by August of 2018.

“In this environment there are questions as to whether or not the Fed can raise rates another three time,” said Melek. “If inflation is low and inflation expectations fall, the Fed will not be in a hurry to raise interest rates next year.”

Incrementum AG fund manager Ronald-Peter Stoeferle, who publishes the annual In Gold We Trust report, also doesn’t see low inflation as a threat to gold and says that another rate hike by the end of the year is unlikely.

“I am extremely bearish on the U.S. economy and you can see weak growth in the inflation numbers,” said Stoeferle. “I just don’t see much further room for economic growth in the U.S.”

Stoeferle’s comments and the latest global inflation picture come after former Fed Chair Alan Greenspan warned in a Bloomberg interview that the U.S. is at risk of stagflation – an economy of low growth and high inflation.

“We’ve been in a period of stagnation since 2008 as a consequence of the sharp decline of capital investment and productivity growth,” said Greenspan. “But stagflation is about to emerge. We are moving into a different phase of the economy — to a stagflation not seen since the 1970s — that is not good for asset prices.”

Gold and bitcoin look ready to heat up

TheStreet’s David Yoe Williams points out that politics and cryptocurrencies seem to be dominating recent market discourse. The U.S. administration faces an unprecedented amount of both internal and internal volatility, due to struggles such as the inability to find a suitable replacement for Obamacare and the negative economic implications that have come as a result.

The stock and bond markets also hinge on President Trump’s efficiency; the “Trump Bump”, which boosted these markets after the election, now looks to be winding down. Additionally, external issues are weighing down on the administration, from Europe and China’s debts, to increasingly strained relations between the U.S. and Russia. Perhaps the most concerning are the tensions with North Korea, which continues to flaunt the destructive potential of its military power.

With so many risks in the world at the moment, many are turning to bitcoin, as the cryptocurrency is seen by some as a hedge against geopolitical issues. However, while bitcoin has been gaining popularity, Williams points out that precious metals are the asset class that could really heat up this autumn.

Gold and silver have already gained 9% and 3% this year, respectively, and with a growing interest in safe-haven assets, Williams believes that the “gold standard” protection that precious metals offer should keep prices on the rise.

The world’s latest gold rush is an Italian affair

America is the home to the world’s most famous gold rush, but Italy looks to be the site of the next craze for the yellow metal. The banks of Italy’s Elvo River have no shortage of gold prospectors in recent days, owing to the site’s history of ample gold deposits.

While many seek to make a profit from their prospecting efforts, there is a clear sense of enjoyment among those scouring the river. As Bruno Martini, a member of the World Goldpanning Association, explains, amateur prospecting takes a methodical approach: figuring out the most lucrative areas before committing hours in hopes of separating a couple of gold specks from the dirt.

As a veteran local recalls, prospecting in the area was once far more profitable, enough to pay for a six-month vacation. These days, a little extra cash is what most prospectors can hope for; the government’s limit of five grams of gold a day is rarely reached. Yet even a brief visit to the area reveals that most are in it due to the rewarding experience of finding scraps of the precious metal and socializing with fellow prospectors, as opposed to making a major return.

alan greenspan, Featured, federal reserve, inflation, italy