uploads///Gold versus US Inflation

Could Inflationary Pressure Drive Gold Higher?



Treasuries and equities

Global equities are performing well, and 2018 has also started on a positive note. Global world equities, tracked by the MSCI ACWI ETF (ACWI), increased ~7.6% since the beginning of 2018. 

We are also seeing US Treasury interest rates rise above 2.0%, which is the highest level it has witnessed since 2008. Global interest rates are also trending higher.

The price of oil is scaling higher. Oil is one of the major determinants of the inflation level in the US. Higher oil prices often take inflation higher. 

Base metals are also performing well. The collective data appears to indicate that overall prices are trending upward, which could create inflationary pressure.

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Inflation hedge

The chart above compares the price movement of gold alongside the ten-year US government bond yield and TIPS (Treasury Inflation-Protected Securities) over the last five years. The graph depicts a possible upward trend for both if we look at the last quarter’s performance. 

Gold is known as a hedge against high inflation. Rising inflation could cause more investors to park their money in gold as a haven investment.

The mining shares that also follow precious include First Majestic Silver (AG), Alacer Gold (ASR), Harmony Gold (HMY), and Randgold Resources (GOLD). On a three-day trailing basis, AG and HMY lost 7.5% and 6.5%, respectively, while ASR and GOLD rose 6.4% and 4.2%, respectively. 


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