Gold gains ground as concern lingers on China, stagflation and tapering
Gold up 1.5% on the week, silver up 4.7%

(USAGOLD – 10/22/2021) – Gold gained ground in early trading on lingering concerns about China property sector bonds, emerging global stagflation, and the future size and scope of the Fed’s tapering program. It is up $8.50 at $1793. Silver is up 16¢ at $24.41. All in all, it’s been a good week for precious metals. Gold is up 1.5% and silver 4.7%. Money Week’s John Stepek believes that the renewed interest in gold has to do with investors waking up to the notion that the Fed is “going to end up behind the curve” on inflation and the real rate of return.

“[T]he reason that gold tends to do well in inflationary times,” he says in a recent Money Week article, “is not because of inflation as such, it’s because when inflation goes up, ‘real’ interest rates (that is, interest rates adjusted for inflation) go down. Gold historically does well when real interest rates are falling. If inflation goes up faster than interest rates, that spells falling real interest rates (even if nominal rates are rising). That, in turn, is good for gold.” Asset allocations for most of us, he concludes, “might need to shift significantly to cope with the new era we might be moving into.”

Gold Real Rate of Return

bar chart showing gold real rate of return 2000-21

Sources: St. Louis Federal Reserve [FRED], Bureau of Labor Statistics, ICE Benchmark Administration

Chart note: Gold’s real rate of return is the difference between the gold bars representing the appreciation or depreciation in the gold and adjacent black bars representing the year-over-year percent change in the consumer price index. As you can see, gold has logged a real return in thirteen of the last twenty years. That return has been significant in some years and speaks to gold’s value as a long-term savings instrument.

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