Gold firms as inflation trade gains traction, yields steady, dollar stumbles
Analyst says ‘we are nearing crucial inflection point’ for global gold investment demand

(USAGOLD – 5/3/2021) – Gold firmed during Asian trading hours as inflation-related buying gained traction, yields steadied, and the dollar stumbled. It is up $16 at $1786.50. Notably, silver is up 43¢ at $26.44 – indicative perhaps of ramped up inflation-based trading. The market is also displaying some signs of short-covering. Long-time market analyst Adam Hamilton picked up a shift in last week’s World Gold Council demand stats worth passing along.

“From 2015 to 2019,” he observes in a piece posted at Seeking Alpha, “[top demand] categories averaged accounting for 51% [jewelry], 29% [investment], 12% [central banks], and 8% [technology] of overall global gold demand each year. But 2020’s pandemic chaos shuffled these rankings, with lockdowns hammering jewelry demand while investment demand exploded. Those four categories represented 38%, 47%, 7%, and 8% of last year’s overall world gold demand…We are nearing that crucial inflection point,” he continues, “where gold investment demand reemerges in a young upleg before soon becoming self-sustaining. And there’s certainly good reason for diversifying portfolios with gold.” We might add that recent reports of strong post-lockdown demand from China and other parts of Asia, where the greatest proportion of jewelry demand originates, could have a compounding effect on already stretched supplies, particularly if ETF demand also reverses course.

Chart of the Day

overlay chart showing the real yield on various Treasury notes and bonds using Shadow Government Statistics' reading on the inflation rate and gold inverted

Chart courtesy of GoldChartsRUs • • • Click to enlarge

Chart note: This chart shows the negative real rate of return on various Treasury note and bond maturities applying Shadow Government Statistics’ rendition of the inflation rate – the same methodology utilized by the Bureau of Labor Statistics in the 1980s. A declining real rate of return has been the dominant trend since the mid-1980s, with negative real yields coming into play as early as the late 1990s. Keeping in mind that the current real rate of return based on current BLS inflation data is on the order of -0.67%, it is radically less than the -7.97% shown on the chart above. The price of gold (shown inverted) has responded accordingly, gaining momentum since the late 1990s.

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