Temporary Inflation Makes Gold Market Bullish, What Should You Do?



oi-Kuntala Sarkar


Two important fundamentals of investing in gold are – to diversify the risk in the investment portfolio and to hold the asset as an inflation protection. The current global economic climate could not be more appropriate for these two reasons, as the US struggles with “temporary inflation” and volatile stock and bond yields. According to experts, the current inflation is called “temporary” as it is an effect of the time after the pandemic. With tight monetary policy by the US Federal Reserve and faster growth and employment opportunities in manufacturing, inflation could be under control for the next year. On the flip side, stock market and government bond yields are rising and hitting around 1.52% as the Fed has strong confidence in the economy. However, since the stock market can become volatile again at any time, an investor must be prepared for it. Fitch Ratings believes that the creditworthiness of US Treasuries AAA could come under pressure if the Fed does not address the debt ceiling issue soon. In this case, gold can reappear as a savior.

Temporary Inflation Makes Gold Market Bullish, What Should You Do?

A recent Kitco Gold poll confirmed participants’ views – on Wall Street gold is going 50% bullish and 29% bearish and 21% in a neutral position, while the gold market on Main Street is 48% bullish and 38% . trending% bearish and 13% in a neutral position. The survey also says: “Bullishness among private investors has increased.” The last spot gold traded was 1762 / oz and the Comex December futures stayed at around $ 1758 and up. This bullish trend is expected to intensify in October until the Fed takes a position on its monetary policy in the November meeting. Ole Hansen, Head of Commodity Strategy, Saxo Bank, commented on this bullish trend of gold and inflation versus Kitco: “Gold is slowly separating from the dollar and the yield as the inflation story becomes anything but fleeting.”

Concerns from traders and investors

Asset trading and investing are treated differently. When trading and investing gold, platinum and silver, some experts think, “When they are traded, you use a method and a plan to get in and out, with strict rules for both. When you invest, you have a set of rules, too, but not as strict. ”With that in mind, an investor must believe in gold for the long term. Gold prices are rising promisingly in early October, but any expansion of Fed tapering will increase prices later this year Experts are more pessimistic about gold price expectations for 2022. So what should investors do? Should they stop buying the asset? Quite the opposite. You can invest in the asset class while keeping an eye on the long-haul portfolio. Because even if the tapering starts in December, this year or early 2020, the Fed will continue to buy government-backed bonds, only the pace will slow down.

Traders, on the other hand, can be stricter in setting their entry and exit strategies as the price of gold will affect them more in the short term. With that in mind, we can derive the comment from Christopher Vecchio, Senior Market Strategist, DailyFX.com, as he said, “I would expect gold to rebound over the course of this crisis, but we’ve been here before and when these issues are resolved, prices could fall like an abyss. ”So traders should be stricter and more cautious about this.

Indian investors shouldn’t be too concerned about the current bullish or bearish sentiment. India is the second largest importer of gold, and domestic gold consumption is only increasing over time. The Indian central bank RBI is also sticking to the asset class and increasing its gold reserves. Hence, if they stick to the same train of thought, it will help them understand India’s policies on the asset class, which is currently bullish.

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