Gold remains stubbornly confined within its recent range
Misery Index rises sharply reflecting possible stagflationary economy
(USAGOLD – 10/11/2021) – Gold remained stubbornly confined within its recent range this morning as the dollar strengthened and Treasury yields pushed higher. It is level at $1758.50. Silver is down 5¢ at $22.69. Wall Street analysts are split on where the Fed goes from here. Some believe it will be forced to taper, as signaled, in the face of increased price inflation. Others believe if it does, it could destabilize a bond market perilously dependent on central bank largesse. As a result, if it does withdraw support it is likely to be tempered. Still others point to a data mix possibly reflecting the early stages of a 1970s-style stagflation – a volatile mix of high inflation and unemployment globally that might be beyond the Fed’s reach. (Please see our Chart of the Day) While the financial market sorts out the possibilities, gold seems content to sit in a range, waiting for something more definitive to develop.
Bloomberg posted an encouraging review of gold’s prospects late last week under the headline Gold’s Lackluster Year May Get a Boost as Stagflation Risks Grow. The article quotes MKS Switzerland’s Nicki Shiels as saying, “there’s certainly some decent gold upside if the narrative changes to one of persistent inflation and slower growth. Stagflation would force a macro rotation out of typical reflation assets or commodities like oil and copper, and into the precious sector.” Commtrendz Risk Management’s Gnanasekar Thiagarajan says that for inflation it’s not a question of if but when. Under those circumstances, he reasons, “investing in gold and silver is the most ideal thing because gold is an inflationary hedge and silver tends to appreciate much more when gold starts rallying.”
Chart of the Day
Inflation + Unemployment
Sources: St. Louis Federal Reserve [FRED], Bureau of Labor Statistics
Chart note: The misery index was first developed in the 1980s to reflect the effects of stagflation – economic stagnation and inflation. It is simply the unemployment rate added to the inflation rate. As you can see, it has risen sharply since the onslaught of the pandemic and remains high now.