Euro am Sonntag: Ideal environment for the price of gold: gold and stagflation | news


by Markus Bussler, Euro on Sunday

Inflation is getting out of control. Inflation in the US for February was 7.9 percent. It should come as no surprise that the US Federal Reserve has now distanced itself from the statement that inflation is only temporary and made a first rate hike last week. The central bank’s interest rate is now 0.5 percent. The last time inflation rates were in the 8 percent range, the Federal Reserve rate was 13 percent.

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The Federal Reserve is trapped: on the one hand, it must now raise interest rates rapidly, on the other hand, there are growing signs that the US economy could enter a recession as early as next year. The three and ten year US Treasury yield curve is already inverted, and the two and ten year is about to. This means that short-term bonds have higher yields than long-term bonds. An inverted interest rate structure is often the harbinger of a recession.

Gold on the way up

It is no surprise that gold is doing well in this environment. High inflation, hardly any growth: When there was last a stagflationary scenario in the 1970s, the price of gold shot up from just under $40 to over $800. Of course, keep in mind that shortly before the price of gold rose from the US dollar. But even if history does not repeat itself one by one, there is much to suggest that in such an environment gold fulfills its function as a protection of wealth and purchasing power and should continue to rise.

Gather strength for the next rally

From a technical point of view, gold has twice surpassed its all-time high of $2,075. First of all, this speaks of a consolidation. The first major support in the form of the previous all-time high of $1,921 from 2011 fell below last week. Investors are now focusing on the support at $1,900, with a bullish bastion waiting below between $1,840 and $1,880.

Here, at the latest, the bulls should regain strength again and start a fresh attack towards the all-time high of $2075. In view of the fundamental and technical environment for gold, the rise in prices should only be a matter of time.

If you want to gamble in such a scenario, you can do so with common gold coins like the South African Krugerrand or the Canadian Maple Leaf. Physical gold is also the ETC Xetra Gold (WKN: A0S 9GB) legally equal. In other words: after twelve months, the earnings are tax-free. The costs amount to 0.36 percent per year. Investors also have the option of receiving the gold physically for a fee.

More news on the price of gold

Image sources: claffra / Shutterstock.com, Invesco

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