[ad_1]
Editor’s Note: With such market volatility, stay up to date with the daily news! In minutes, discover our quick summary of today’s must-see news and expert opinions. Register here !
(Kitco News) – The gold market heard some pretty calming words from Federal Reserve Chairman Jerome Powell as he continued to downplay the inflationary threat and reiterated that despite the talks, the central bank did not is not ready to change its current ultra-accommodative monetary policies.
Despite this accommodative stance, the gold market only briefly hit a one-month high. Looking at the price action, there is some obvious reluctance among gold investors to come back to full force in the market. I think it all comes down to the threat of inflation.
While Powell can say whatever the market wants to hear, it’s hard to see how the looming inflationary threat will be transient. Higher prices are increasingly expected to be much stickier than central bank economists predict.
While many investors have focused on this week’s Consumer Price Index, which has seen an annual increase of 5.4%, I think the most impactful numbers come from the Consumer Price Index. production. The report says annual headline inflation rose 7.3%, the strongest increase since 12-month data was first calculated in November 2010.
The reality is that even if businesses start to see lower input costs, they won’t necessarily pass these savings on to customers. Take wood as an example. During the first half of the year, lumber prices experienced an unprecedented rise to stratospheric highs. In May, the American Home Builders’ Association noted that due to record lumber prices, the average price of a new single-family home had increased by nearly $ 36,000.
Lumber prices hit the headlines again this week as the market dropped all of its first-half gains of this year. Can’t we expect new homes to cost $ 36,000 less now?
More and more people are starting to realize the new reality as we enter a new inflation regime. Even the world’s largest asset management company is hitting the bandwagon.
BlackRock chief executive Larry Fink said on Wednesday that the United States should prepare for a period of higher inflation and would not rule out a sustained increase above 3%. At the same time, he also announced that 95% of BlackRock employees will get an 8% pay rise.
While this is positive for gold in the long run, the reality is that gold could suffer as the market and investors focus on the transition. As inflation picks up, interest rates will need to rise, meaning the opportunity costs of holding gold will rise.
However, for gold investors, the important thing is to keep an eye on the long term horizon. Interest rates will go up, but they don’t go very far and will still remain low by historical standards for the foreseeable future.
With that, have a good weekend.
Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.
[ad_2]
Source link