Gold advances cautiously ahead of this week’s Fed meeting
Fidelity International says gold may be on track to rescale last July’s record highs

(USAGOLD – 7/26/2021) – Gold advanced cautiously in early trading as bond yields dropped, the dollar weakened and the markets prepped for this week’s Fed meeting. It is up $3 at $1806. Silver is up 12¢ at $25.35. Most expect the Fed to remain on the dovish side of the policy ledger this week, particularly with coronavirus making its way back up the list of policy concerns. Fidelity International, the overseas arm of the 75-year old Boston-based investment house, recently joined the ranks of institutions extolling the virtues of gold ownership.

“Currently trading at almost exactly $1,800 per ounce,” it says in a recent report, “gold has yet to quite rescale the record high levels it saw last July at just over $2,000. In an environment of rising inflation and mounting concerns over the Delta strain, however, it could be on track to do so. Inflation reduces the buying power of paper currencies, including how much gold can be bought for a given amount of paper. Given that gold is in very limited supply and can’t be devalued in the way that paper currencies can, its value should tend to rise as the prices of goods and services increase.”

Chart of the Day

overlay line chart showing the price of gold and real rate of return on the 10-year U.S. Treasury

Sources: St. Louis Federal Reserve [FRED], Federal Reserve Board of Governors, ICE Benchmark Administration

Chart note: As you can see in this chart, declining real rates have had a direct effect on the price of gold, particularly noticeable in the period after the 2007-2008 credit collapse and the pandemic-induced economic crisis that began in early 2020. The inflation-indexed real rate of return on the 10-Year TIPS finished at -0.98% on Friday. With inflation on the rise, the negative real rate of return will accelerate unless the Fed and/or bond market pricing push yields higher at an equivalent rate.

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