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Gold Finds Support as Key Inflation Rate Hits a 30-Year High

By:

CEO and Chief Investment Officer

Contrary to popular belief, what’s good for the goose is not always good for the gander.

Last week the U.S. dollar advanced against a basket of foreign currencies to hit its highest level in about a year. For consumers and importers, this is good news, as it means the greenback offers greater purchasing power.

For exporters, on the other, and for the price of gold and other commodities that are priced in U.S. dollars, this is a headwind. In the chart below, you can see that gold and the dollar share an inverse relationship. When the dollar strengthens, the yellow metal falls; when it weakens, gold soars. It’s important for investors to recognize this relationship because it can help them manage their expectations.

It’s also important for investors to keep in mind that gold continues to be one of the most heavily traded assets on the planet, in case they were wondering if Bitcoin is stealing some of its thunder as a store of value.

I often tell people that gold is the fourth most liquid asset, but the most recent data from the World Gold Council (WGC) shows that it’s actually the second most liquid asset following S&P 500 stocks. The precious metal’s average daily trading volume for the one-year period through September 28 was $183 billion, compared to the S&P 500 with nearly $235 billion in average daily volume. That dollar amount is enough to beat currency swaps as well as all government and corporate debt. The WGC measures gold’s liquidity by looking at data provided by global commodity exchanges, over-the-counter (OTC) markets and gold-backed ETFs.

Inflation Surging at Fastest Pace Since 1991. Will Gold Benefit?

Gold traded slightly up last Friday following the release of economic data showing that consumer prices jumped the most in 30 years. The personal consumption expenditure (PCE) index, which reflects changes in the prices of goods and services purchased by U.S. consumers, rose 4.3% year-over-year in August, the ninth straight month of accelerating inflation.

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Originally Posted on October 4, 2021 – Gold Finds Support as Key Inflation Rate Hits a 30-Year High

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The U.S. Dollar Index is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners’ currencies. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The PCE price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the United States. Quarterly and annual data are included in the GDP release. The S&P CoreLogic Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate nationally. The Pending Home Sales Index (PHS), a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos, and co-ops.

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