CAN GOLD CONTINUE TO TRADE HIGHER DESPITE LIMITED INFLATION?
One of the historic drivers of the price of gold has been the fear of inflation. However, currently there appears to be limited inflationary pressures and very little appears to be on the horizon. In fact, inflation in the wealthiest countries has collapsed at the fastest pace since the 2007-2009 financial crisis. The Organisation for Economic Cooperation and Development said annual growth in the price of goods and services across the group of 37 advanced countries slowed significantly in March. Inflation across the OECD area dropped to 1.7% in March from 2.3% in February.
In the U.S., the consumer price index fell by most on record in April. The core consumer price index, which excludes volatile food and fuel costs, fell 0.4% from the prior month after a 0.1% decrease in March, according to the Labor Department. That is the biggest drop in data back to 1957. Compared with April of last year, the core consumer price index increased 1.4%, the smallest annual gain since 2011. The overall consumer price index declined 0.8% in April from a month earlier, the most since December 2008, and annual consumer inflation slowed to 0.3%, the smallest increase since 2015.
Chart 1: Gold Futures - Weekly
THE U.K. INFLATION RATE SANK IN APRIL TO ITS LOWEST LEVEL SINCE AUGUST 2016 WITH CONSUMER PRICE INFLATION DROPPING TO AN ANNUAL RATE OF 0.8% FROM 1.5% IN MARCH.
Euro zone annual inflation in April was 0.3%, which is the lowest level in almost four years, according to final data released by Eurostat. The European Union’s statistics agency had previously estimated that consumer prices in the 19-nation currency bloc increased 0.4% on the year in April.
The U.K. inflation rate sank in April to its lowest level since August 2016 with consumer price inflation dropping to an annual rate of 0.8% from 1.5% in March. That was the sharpest one-month decline in over a decade and took inflation further below the Bank of England’s 2.0% target.
According to the OECD, annual inflation also fell sharply in Canada to 0.9% in March, from 2.2% in February. Also, Japan’s core consumer prices fell for the first time in more than three years in April on an annual basis, declining 0.2% in the year to April. This was the first negative reading since December 2016 and was below the median market forecast of a 0.1% decline.
So, with the lack of any serious inflation threat on the near-term horizon, why has gold put in such a stellar performance?
The answer could be that investors are assessing the longer-term potential inflationary ramifications of the unprecedented fiscal stimulus efforts from major industrialized countries and the world’s major central banks.
Source: Chart from QST
18 | ADMISI - The Ghost In The Machine | Q2 Edition
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