Higher inflation in the US usually translates to rising interest rates which is usually negative for gold, as higher rates mean bigger yields which tends to leave investors chasing the US dollar for bigger returns.
Data out yesterday showed that U.S. consumer prices jumped to their highest level in nearly 6.5 years, rising to 2.9 percent which was slightly up from 2.8 percent in the previous month.
This is bound to keep the US Federal Reserve on track to lift interest rates further so the inflations figures remain under control.
The US economy has not had to deal with rising inflation for more than 10 years and the last time around it caused havoc to the American financial system so investors are poised to be weary this time around and put their money into safe haven assets such as gold in order not to get burnt again.
“Interest rates are going to move higher but real rates will remain low and I think gold will do just fine in that environment,” he said. “I still like gold as an important diversifier as inflation moves higher.” Said Axel Merk, president and chief investment officer of Merk Investments.
The trade tariffs recently introduced by US president Donald Trump are also expected to lend some support to the gold price as investors, wary of the unknown one again seek out safer places for their money and gold is expected to be near the top of the list.
“Although tariffs aren’t good, I don’t see signs that this economy is going to tip into a recession any time soon. I think this economy is going to overheat,” he said. “An important issue though is that people don’t know what is going to happen and they don’t know how to invest in the long-term.” Mr Merk added.
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