Trump’s Inflation and Gold

Metals have been riding a volatility rollercoaster in recent weeks. Gold coasted up throughout May, surging at the end of the month and nearly hitting the $1,300 benchmark. Early June saw a drop in the price of the yellow metal following the Federal Reserve’s decision to raise interest rates, setting gold back again. Since then, gold has resumed its 2017 trend upwards.

Taking into account the Fed’s motivation for this rate increase, our outlook remains bullish for gold. We’re looking at gold as an asset class that isn’t exactly correlated with the asset market or stock market, but is instead a reflection of investor’s demand for safety and security.

The Fed’s decision to raise rates points to a degree of confidence that inflation is rearing its head.

Reports show that we are below target level inflation, so what has the Fed so convinced?

The simple answer is this: growth has gone stagnant.

The growth we were seeing immediately following President Trump’s election has gone slack. So have wage growth, core inflation and headline inflation (which includes the cost of food and energy). Even wage growth, which should be rising in today’s low unemployment environment, has flat-lined.

Coupled with the disproportionally low levels of volatility and financial stress that we’re seeing, the market is on shaky legs. Overvalued paper markets are due to get choppier, and with the Fed preparing for rising inflation, you’re going to see additional upside for gold.

Gold is an essential part of a balanced portfolio – and it becomes a necessity in times of economic instability. Over the next six months, we’ll start seeing higher highs in precious metals as the Federal Reserve becomes more hawkish. Compensation inflation and other effects of full employment will likely strike at prices in the near future, driving down the value of the dollar and continuing to boost the value of gold.

“Gold plays an integral part of a balanced portfolio,” said Jonathan Rose, CEO of Capital Gold Group. “Whether you’re concerned about inflation, geopolitical tensions, or market bubbles, a 10-25% gold allocation should be the bedrock of anyone’s portfolio.”

SOURCE Capital Gold Group