Price of Gold and Inflation Warning Signs

Inflation Warning Sign and the Price of Gold

Price of Gold and Inflation Warning Signs

September 9, 2021

Have any of you noticed the rising costs at the supermarket? How about if you were fortunate enough to go on a vacation this summer? Did you feel the pain of how much prices went up at your vacation destination? The cost of lodging, dining out and even entertainment has everyone scratching their heads.

The Federal Reserve Chairman says not to worry, this is all “transitory.”  You think? The cost of manufactured goods leaving China this year over the same time last year is up significantly. Some Wall Street economists are calling for the year-end inflation figures to be up over 10% from the same time last year.

Is the Price of Gold Primed for an Upward Move?

The U.S. Dollar:

Since the U.S. Dollar is the world’s reserve currency and the price of gold is pegged to the U.S. dollar, let’s look at what the Dollar Index represents.

The Dollar Index is a measurement of the U.S. dollar against a basket of six world currencies: the Euro, Swiss Franc, Japanese Yen, Canadian Dollar, British Pound, and the Swedish Krona. The Dollar Index valuation is the fair value of the dollar in the world markets.

The Dollar in 2021:

On the first day of 2021, the Dollar Index was marked at $89.87 and at the time of this report the Dollar Index was trading at $92.64.
That’s up approximately 3%.
In 2021, we saw a low of $89.44 and a high of $93.57.

Price of Gold in 2021 – Upside Potential Ahead:

The price of gold on the first day of 2021 was $1887.60 and at the time of this report the price of gold was trading at $1,792.00.
That’s down approximately 5%.
The low for 2021 was $1,687.10 and the high was $1943.20.

An analysis:

Since the price of gold has weakened more than the Dollar Index has gained, one might take a position that the price of gold has upside potential.

Inflation and the U.S. Dollar:

The impact of inflation on the time value of money will decrease the value of the dollar over time. And corresponding, since the increase price of gold is in dollar terms, a weaker dollar should increase the value of the yellow metal.

There are other factors that influence the price of gold, like a change in the Fed Fund rate and or a move in the equity markets.

If you believe the Fed chairman is right that these inflation figures are “transitory.” Then an investment in gold might not be part of your investment strategy. But, if like most American consumers who are seeing higher prices at the pump and in the grocery store, you truly believe these higher prices are as here to stay, then an investment in physical gold might be something you want to seriously consider.

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