May 19, 2021
Gold has been a strong but steady incline for most of 2021, but prices had fallen off after the CPI’s inflation reports. Gold has bounced back after inter-week lows. For most, it is puzzling that higher inflation signals in the CPI report would push the precious metal lower, but baked into all of this is how the Fed will respond. Markets are anticipating a tightening Fed and lower long-run inflation. This would make the inflation hedge of gold less valuable, but the upward price movement later in the week is sending a slightly different signal: the inflation is temporary. Yes, this is the largest monthly CPI rise since 2009, but the Fed thinks this is transitory and markets are adjusting with them. Still, this leaves precious metal investors having to anticipate not only inflation but the Fed’s reaction.
FINSUM + Magnifi: Investors need not leave their bullish stance on Gold. The Fed’s new average inflation targeting will mean it will tolerate higher inflation in the short run, and gold/silver will be more correlated with future inflation news.
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