06 May 2021

Inflation Concerns Rise as Gold Jumps Above $1,800

Inflation expectations escalated over the past week as the recent rise in base metal, energy and agriculture prices added to inflation concerns. Subsequently, gold increased by more than 2% over the past week, jumping $27 on Thursday to $1,814/oz.

U.S treasury bond yields decreased by 4.85% from its high of 1.651% this week. Inflation is set to outpace yields this year and create a perfect environment for a tailwind to increase gold’s value. Currently, the U.S 10-year bond yields are 1.573% and according to forecasts, U.S inflation is set to be 2.25% in 2021 – bolstering gold as the inflation hedge.

There was a 360% increase in  M1 money supply from Jan 2020 to April 2021. The Fed however discontinued publishing weekly money supply updates and have decided to update it monthly, weekly updates was published since 1970.

The U.S currently has 30 trillion dollars in public debt. If U.S yields were to get to historical ranges of four or five percent, the government will not be able to pay its debt interest. The Fed will thus continue to print money to buy bonds and keep yields artificially curbed.

Inflation concerns therefore seems to be the main drive of the gold price rise this week, as markets call bluff on Janet Yellen, U.S Treasury Secretary, stating earlier this week that higher interest rates might be needed to keep the economy from overheating from inflation.

The yellow metal was last seen trading $1,814/oz.

Jaco Lups