Higher & More Permanent Inflation Is Positive For Gold

1. Higher & More Permanent
Inflation Is Positive For Gold

2. Points To Be Covered Today:
• Gold A Long – Term Hedge
• Gold Rebounds After Fainting Due To Inflation Spike
• Interest Rate Support Yellow Metal
• Implications For Gold
• Gold Is A Proven Long-term Hedge Against Inflation
• Cryptocurrency Crash Benefits Gold
• Gold News & Analysis
• Today’s Gold Technical Analysis

3. Gold A Long – Term Hedge
• Gold is a proven long-term hedge against inflation, so “gold can be a valuable
component of an inflation- hedging basket”, as the WGC’s Investment Update
shows.
• What is important here is that the Fed has become more tolerant of higher inflation.
• Therefore, we will have an environment of higher inflation and dovish Fed behind
the curve, which implies lower real interest rates and a weaker dollar.
• Hence, gold should attract attention as a hedge against inflation – actually, it’s
already happening, as market sentiment toward gold has recently improved, while
outflows in gold ETFs have slowed.

4. Gold Rebounds After Fainting Due To Inflation
Spike
• Gold recovered after a downward response to the surge in inflation.
What’s next for the yellow metal?
• Gold rebounded after an initially bearish reaction to the BLS report
showing that inflation soared 4.2% in April year-to- year.
• This means we have an inflation annual rate doubling the Fed’s
target and the highest since the Great Recession as the chart below
shows.

5. CPI Annual Inflation Rate

6. Interest Rate Support Yellow Metal
• It might now seem counterintuitive, but traders worried that the jump in the CPI would force
the Fed to tighten its monetary policy earlier than anticipated.
• However, it seems that the US central bank managed to convince the markets that it would
remain dovish for a very long period.
• April’s inflation reading wouldn’t accelerate the first hike of the federal funds rate.
• Federal Reserve Governor Christopher Waller said that the Fed would need “several more
months of data” before considering modifications to its stance.
• He added “now is the time we need to be patient, steely-eyed central bankers, and not be
head-faked by temporary data surprises.”
• So, don’t fight the Fed, interest rates will stay at zero for several months, thus supporting
the yellow metal!

7. Fed’s Narrative Is That The Current Inflation Is
Transitory
• The Fed’s narrative is that the current inflation is transitory. Of course, the April
surge was partially caused by a 10% increase in the cost of new, as well as used
cars and trucks – this accounted for a great part of the overall rise.
• Interestingly enough, the massive spike in car prices was in part generated by
temporary supply-chain disruptions, i.e., the shortage of microchips used in
automobile production.
• However, one can almost always find an element without which inflation is smaller.
• But one can also almost always find an element without which inflation is higher.
• This is how the consumer baskets work: some goods are getting more expensive,
others are getting cheaper, etc.

8. Inflation May Be More Lasting Than Many
Analysts Believe
• So, although May’s inflation reading will likely be smaller, inflation may be more lasting
than many analysts believe.
• There are many arguments for this.
• First, the surge in the broad money supply.
• Second, rising producer prices in China, so there might be an import of inflation.
• Third, the realization of the pent-up demand.
• Fourth, the rising input prices and more room for passing them on consumers.
• Fifth, April’s sluggish job creation signals that wages will have to rise to entice people to
return to work (all the recent unemployment benefits have made current wages less
appealing). So, producers could try to pass these increases in wages on consumers, just
as with rising input prices.

9. Implications For Gold
• What does inflation imply for the gold market? Well, from the fundamental
perspective, higher and more permanent inflation is positive for the
yellow metal.
• Inflation lowers the real interest rates and the purchasing power of the
greenback, supporting gold.
• Of course, the short-term relationship between inflation and gold is more
complicated (and less bullish than in theory), especially when higher inflation
translates into higher nominal bond yields and expectations of a more hawkish
Fed.

10. Gold Is A Proven Long-term Hedge Against
Inflation
• So “gold can be a valuable component of an inflation- hedging basket”, as the
WGC’s Investment Update shows.
• What is important here is that the Fed has become more tolerant of higher inflation.
• Therefore, we will have an environment of higher inflation and dovish Fed behind
the curve, which implies lower real interest rates and a weaker dollar.
• Hence, gold should attract attention as a hedge against inflation – actually, it’s
already happening, as market sentiment toward gold has recently improved, while
outflows in gold ETFs have slowed. And, as the chart below shows, the price of gold
has jumped this week above $1,850.

11. Gold Prices In 2021

12. Cryptocurrency Crash Benefits Gold
• The uncertainty surrounding cryptocurrencies has provided the gold market
another boost.
• Although cryptos may be unregulated and can act as a hedge against rising
inflation or weaker paper currencies, they do not have the long, reliable history
that gold bullion does.
• Given gold’s timeless role as a store of value and protector of wealth, some
investors concerned about long-term capital preservation are likely to
reconsider their affinity digital assets and turn toward bullion instead.

13. Cryptocurrency Crash Benefits Gold - I
• This week has been truly brutal for the
entire cryptocurrency sector, with the prices of major currencies
like Bitcoin and Ethereum crashing at least 30%.
• The overall sector has shed trillions of dollars in value.
• The recent carnage for holders of digital currencies could be due to
a variety of factors including profit taking spurred by Elon Musk, an
easing of inflation worries, or concerns about new regulations
coming down the pike.

14. Cryptocurrency Crash Benefits Gold - II
• Whatever the case may be, some of the capital that recently left the crypto space
has found its way into the gold and silver markets. This trend could continue as well,
with precious metals gathering strength and with Bitcoin still having plenty of room
to fall further.
• Bitcoin hit its lowest price since January as the People’s Bank of China has
reiterated its view that the tokens cannot be accepted as a form of payment.
• Since 2017, China has become an increasingly difficult adversary for
cryptocurrencies and virtual products. The communist nation has banned initial coin
offerings while also forcing many exchanges to move overseas.
• China has been known to implement capital controls as it seeks to control the ebb
and flow of currency within its borders.

15. The Bitcoin And Crypto Market
• A cryptocurrency can make these controls impossible to execute, however, as funds
can be swiftly and easily transferred overseas.
• The only digital currency that would allow China to maintain capital controls would
be the issuance of its own digital currency. China has reportedly already taken steps
to introduce its own digital yuan, and the country looks to become more aggressive
in the space.
• In addition to China, the Bitcoin and crypto markets have also been negatively
impacted by comments from Tesla chief Elon Musk.
• Tesla recently purchased a large sum of Bitcoin as Musk seemingly wanted to push
the use of the currency. Tesla has, however, reportedly retracted the notion that it
will accept Bitcoin as payment.

16. Gold’s Timeless Role As A Store Of Value
• Further commentary by Musk over the last several days has only added to the confusion.
• The uncertainty surrounding cryptocurrencies has provided the gold market another boost.
Although cryptos may be unregulated and can act as a hedge against rising inflation or
weaker paper currencies, they do not have the long, reliable history that gold bullion does.
• Given gold’s timeless role as a store of value and protector of wealth, some investors
concerned about long-term capital preservation are likely to reconsider their affinity digital
assets and turn toward bullion instead.
• Meanwhile, rising Middle East conflicts are also fueling gold’s recent rise.
• Israeli warplanes pounded Gaza this week in the face of Hamas rocket attacks on Israel,
and any escalation in the conflict will underpin the bull case for precious metals.

17. Current Economic And Geopolitical Backdrops – Highly
Positive For Gold
• To be sure, the current economic and geopolitical backdrops – while negative
in many ways – are highly positive for gold and silver.
• But they’ve always been a hedge for turmoil.
• If you already own some physical gold and silver bullion, now may be a good
time to consider adding more.
• For those who do not currently own any of the monetary metals, it’s hard to
imagine what else they could be waiting for!

18. Gold News & Analysis
• Gold offered for the first time in July, reverses from three-week top.
• Covid woes, indecision over central bank measures weigh on risk appetite.
• ECB special meeting, US Jobless Claims will be the key.
• Wednesday’s uptick in gold prices came amidst the continuation of the
uptrend in open interest, which is indicative that further upside should not
be ruled out.
• That said, and following the re-test of the $1,800 mark per ounce troy, the
yellow metal now faces the next target at the 200-day SMA near $1,830.
• Source:
• Gold Forecast, News and Analysis - FXStreet

19. Gold Today’s Technical Analysis
• Gold justifies the early week failures to cross 200-day EMA with the latest drop.
• However, a clear downside break of $1,798-95 horizontal area, stretching from late
April, becomes necessary for the bears to retake controls.
• Following that, a horizontal from late March area around $1,756 will be in the
spotlight.
• Alternatively, a daily closing beyond the 200-day EMA level of $1,808 will need
validation from May 13 low surrounding $1,809 to aim for May 10 top of $1,845.
• Overall, gold bulls seem to have tired and hence sellers may return should the latest
risk-off mood prevail for long.

20. Higher & More Permanent
Inflation Is Positive For Gold

21. THANKS FOR LISTENING
Higher & More Permanent Inflation Is Positive For Gold