Wednesday, January 19

Gold will be the big winner from unbridled inflation

Gold could be the solution to inflation for investors. And it is that the rise in prices has become a headache. Even the president of the Federal Reserve, Jerome Powell, has recognized that it is no longer possible to speak of transience.

The rise in the CPI is taking place in a generalized way in all economies. In the United States, it reached the all-time high of 6.2 percent. In the euro area, it stands at 4.9 percent, which also maintains interest rates at zero percent.

What would be the solution? According to the best investors, the precious metal would be the asset that would offer the greatest protection against it.

Precisely, from Invesco they maintain their bet on gold. The manager points out that if inflationary pressures continue, there will be “an increase in the price of gold.”

In this sense, Laure Peyranne, head of ETFs at Invesco for Spain and Latin America, assures that to date it has not been produced by the work of central banks.

Gold upside potential versus inflation

Gold offers hedging against inflation and is a vehicle for speculation, making it a safe haven and “an asset that has value,” according to the expert’s analysis. In fact, gold exceeded $ 1,850 when the US inflation data was released,


5,550,31 %


To make such an assertion, Invesco collects that gold has risen an average of 15 percent per year when inflation has exceeded 3 percent, while the yield falls to 6 percent when the rise in prices is less than 3 percent. . That is precisely the scenario in which the bulk of global economies find themselves.

In fact, in the last 20 years, the evolution of the price of gold has been good, with an average profitability of 10.2 percent.

Last year, Peyranne notes, “gold held up relatively well during the sharp correction in March 2020 and continued to perform well amid uncertainty about economic growth.”

Gold, $ 2,000 target

Gold reached $ 2,000 at the beginning of the year, but has subsequently been corrected to around $ 1,770. Not even the US CPI has managed to sustain the price of gold this year.

The reasons are various, explain from Julius Baer.

“An even stronger US dollar, somewhat higher real US bond yields, and the appointment of Powell as chairman of the US Federal Reserve have been enough to turn gold and silver prices on track.”

Although analysts believe that if gold manages to recover and sustain the level of $ 1,850, “we could be facing a new upward momentum in the precious metal, after staying within a lateral range in the last four months,” they point out.

Gold outlook for 2022

Looking ahead to 2022, we still “see a decline in economic risks,” they explain from the same manager.

That said, the roller coaster ride could well continue as financial markets like to forecast the twists and turns of monetary policy.

However, any rebound should find resistance sooner or later as long as it is not supported by demand as a safe haven for the precious metal and as long as the economy remains in recovery mode.

However, the prospect of a slowdown in economic growth and persistent inflationary pressure could cause the debate on stagflation to regain steam.

Gold could benefit from this economic backdrop, but remains tied to additional Omicron data, according to DailyFX analyst Warren Venketas.

Credit Suisse expects gold prices to average $ 1,850 an ounce next year, before dropping to $ 1,600 in 2023.