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All that Glitters: What is Gold Telling Us?

Is Gold Predicting a Burst of Inflation?

Despite the slight uptick in credit growth spurred by global central bank easing, microeconomic theories indicate a subdued outlook for inflation. The recent increase in market pricing of inflation only brings market pricing into alignment with underlying modest inflation risks.

 

Is Gold Presaging a Loss of the Dollar’s Role?

Some suggest that the gold rise traces the trend depreciation of the dollar, presaging its decline as the premier international reserve asset. But, Citi analysts believe no other currency or country is ready or willing to take on the dollar’s role. The US Federal Reserve’s massive provision of dollars via swap lines only emphasizes the premier role. Even if the dollar is now worth less in gold terms so too are all the other currencies.

 

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Is Gold a Measure of Uncertainty and Potential Equity Rout?

Recent record ETF investor inflows in gold reflect chase for safe haven assets amid uncertainties related to health, economic activity, financial markets and political outcomes. Gold remains a good tail risk hedge during volatility and periods of asset market turmoil.

 

The upcoming US elections could act as a geopolitical risk factor for the ongoing gold price rally. However, gold prices tend to increase as opposed to selling-off immediately after an election, although these rallies mostly fade quickly.

 

Is Gold Rising on the Fundamentals?

The ongoing gold bull cycle is driven by monetary policy easing, including central bank net buying of gold in emerging market economies. Low policy rates and negative real yields have reduced the opportunity cost of holding a non-coupon bearing instrument like gold.

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