Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Rallies on Softening Inflation. What’s Going On?

Commodities / Gold and Silver 2021 Aug 19, 2021 - 04:17 PM GMT

By: Arkadiusz_Sieron

Commodities Inflation softened slightly in July and gold prices rose, but the bullish joy may be premature. How should we respond?

Inflation eased a bit in July, but it remained disturbingly high. According to the latest BLS report on inflation, the CPI increased 0.5% in July after rising 0.9% in June. The core CPI, which excludes food and energy, also softened, as it rose 0.3% in July after increasing 0.9% in June. The deceleration was mainly caused by a much smaller advance in the index for used cars, which increased only 0.2% (it was 10.5% in June).

However, on an annual basis, inflation practically stayed unchanged since June, as the chart below shows. The overall index surged 5.4% for the second month in a row (on a seasonally unadjusted basis), while the core CPI soared 4.3%, following a 4.5% jump in the previous month.





So, at first glance, it seems that inflation has peaked. This might be true, but please notice that it remained disturbingly high despite the deceleration in several subindexes, including the index for used cars. I dread to think what would be if these categories didn’t moderate!

What’s more, the producer price index for final demand rose 1% in July (MoM) and 7.8% over the past 12 months, as one can see in the chart below. It was the largest advance since the 12-month data was first calculated in November 2010. Part of this increase could be passed on to consumers later, as companies have recently gained more ability to lift prices seeing weak resistance to price increases.



Additionally, the index for shelter – the biggest component of the CPI, not hit by the pandemic as strongly as restaurants and hotels industries – has been rising gradually since February 2021, and it has accelerated to 2.8% in July. Last but not least, the US Senate passed Biden’s infrastructure plan, which could also add something to the inflationary pressure by an increase in the money supply. All these developments suggest that inflation isn’t going away just yet.

Implications for Gold

What does the recent inflation report imply for the gold market? Well, theoretically, softer inflation should be negative for gold, which is seen as an inflation hedge and which historically shined during periods of high and accelerating inflation.

However, as the chart below shows, the price of gold has rebounded somewhat from last week’s low, gaining about $50 from Tuesday to Friday. It seems that steady (and partially below expectations) inflation gives the Fed room to maintain its ultra-dovish monetary policy. Indeed, according to the CME FedWatch Tool, the expectations for the Fed’s tightening cycle have diminished slightly from the previous week, which supported gold prices.



However, a bullish hurray might be premature. Inflation is still high and significantly above the Fed’s target. Inflation expectations remain elevated, and some measures even increased slightly in July. Unfortunately, markets seem not to worry significantly about inflation any longer, and the stock market continues its rally.

Even if inflation really softens later this year, which is likely given that some supply disruptions will probably resolve, it shouldn’t suddenly dive below 2%. So, the July report shouldn’t materially change the Fed’s stance, especially that the US central bank focuses more on the labor market now. Hence, gold investors should brace themselves for the upcoming tapering of quantitative easing.

However, just as day comes after night, upward waves come after bearish trends. The most likely macroeconomic scenario is that inflation will remain high, while the economic growth will slow down, which means stagflation. Indeed, the downward trend in the bond yields – despite high inflation – could signal weak growth, requiring dovish monetary policies. If history is any guide, gold will shine during stagflation.

If you enjoyed the above analysis, we invite you to check out our other services. We provide detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in