The Impact of Inflation and Deflation on Gold

Today’s AM fix was USD 1591.75, EUR 1285.54 and GBP 1024.29 per ounce.
Yesterday’s AM fix was USD 1617.00, EUR 1285.37 and GBP 1032.90 per ounce.

Gold fell by $18.40 in New York yesterday compared to Tuesday’s close prior to Independence Day, and ended with a small loss of 1.13% at $1,604.40/oz. Silver also dropped slightly, closing at $27.68/oz. Silver is currently trading at $27.48/oz.

Gold did not manage to stay above $1,600/oz in Asian and European trading this morning, and is currently trading at $1,595.90/oz. Gold is still up from a recent low of on the 28th of June at $1,552/oz. Key US employment data is due to be released later today.

WGC – The Impact of Inflation and Deflation on the Case for Gold

Following yesterday’s WGC reports about the role of gold in investment portfolios, this report looks at gold’s performance during inflationary and deflationary times. Gold, non-perishable and limited in supply, is seen as relatively immune to inflation, financial crises and credit default. Topically, periods of negative real interest rates are thought to support the demand for gold, because the opportunity cost of holding gold decreases when real interest rates fall. Weak dollar has also been seen to drive up the price of gold.


Real gold price

The report concludes that gold may perform especially strongly when inflation is high, the dollar is weak, and there are elevated levels of financial stress, highlighting the role of gold as risk insurance in a balanced portfolio. There have been several recent inflationary periods in the world, but periods of general deflation have been rare. Nonetheless, the report suggests that in deflationary times, gold’s demand as a store of value increases even when the demand for commodities that are industrial demand-driven is likely to fall.


US dollar exchange rate and gold

The full report is available here.

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NEWS

Gold struggles ahead of U.S. jobs report – MarketWatch

Gold Futures Fall On Stimulus Outlook, Dollar’s Rally – Bloomberg

Gold steady before US jobs data, 2nd wk of gains likely – Reuters

Mark OByrne

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