Gold posts cautious gains in quiet early trading, ‘bullish gold outlook does not depend on the world economy ending up in stagflation’

(USAGOLD – 11/20/2020) – Gold is posting some cautious gains in quiet early trading as we close out a marginally down week. It is up $8 at $1877. Silver is up 34¢ at $24.38. Financial markets in general appear to be in a holding pattern this morning with only commodities showing some minor strength. For its part, physical gold continues to draw consistent interest from investors even as inflationary expectations are pushed to the background under the weight of renewed pandemic lockdowns and reduced economic activity. Robert Rekasi, who heads up foreign exchange reserves management for the Central Bank of Hungary, is one who believes inflation is only one of many factors affecting gold demand.

“I would not put too much emphasis on inflation in the short term,” he says in an interview yesterday with Central Banking magazine. “In theory, increasing global debt levels at some point could have an inflationary effect. But, in the current context, it is not an immediate threat. Changes to the market structure are more important than the inflation outlook for gold. In the last decade we saw how central banks became net gold buyers mainly because of the ultra-low-yield environment. The development of the ETFs market has boosted it even further. All of these moves took place in a context of subdued inflation. A bullish gold outlook does not depend on the world economy ending up in stagflation.”

All of which serves as an appropriate introduction for our ……

Chart of the Day

overlay area chart showing gold's performance during the disinflationary economic breakdown 2008-2015

Chart note:  The gravitational pull of disinflation was a constant in the economy even before the coronavirus. Now it is fully asserting itself – at least in the short term – despite the ongoing discussion about future inflation and inflationary expectations. Debt becomes an enormous weight under disinflationary conditions with threats to the stability of the financial system multiplying accordingly. The last crisis was essentially a disinflationary breakdown. Gold, as you can see by the chart,  rose to the occasion.

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