Rising Inflation Is Nothing But Bullish For Gold

As I told Daniela Cambone during last week’s edition of Gold Game Film, lumber’s big upswing is all very constructive for the price of gold, which has historically been used as a hedge during periods of rising inflation.

The yellow metal closed above $1,270 an ounce last week for the first time since soon after the November presidential election. A “golden cross” has not yet occurred, with the 50-day moving average still below the 200-day, but such a move appears likely in the next few trading sessions if upward momentum can be sustained.

gold surges to a five month high on inflation and geopolitical risk
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Fueled also by geopolitical tensions associated with Syria, Russia and North Korea, gold demand is on the rise, with last Tuesday’s trading volumes on gold calls surging 10 times Monday’s amount on the New York Mercantile Exchange. As I already shared with you, investor sentiment of gold during the recent European Gold Forum was particularly strong. A poll taken during the conference showed that 85 percent of attendees were bullish on the metal, with a forecast of $1,495 by year’s end.

With the U.S. ramping up military action overseas, including its dropping of a devastating bomb in Afghanistan on Thursday, many investors are lightening their risk assets in favor of “safe haven” instruments such as gold and Treasuries. The S&P 500 Index dropped below its 50-day moving average last week, signaling a slowdown in blue chip stocks.

Stock Market Tumbles 50 Day Moving Average
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Financials were among the biggest laggards as investors have begun to question President Trump’s ability to deregulate the banking sector. After several disappointments and setbacks, including a failure to repeal and replace Obamacare, renewed military involvement in Syria and Afghanistan might provide a welcome boost to Trump’s sluggish job approval rating.

Gold also responded positively to recent comments by Trump on U.S. dollar strength and monetary policy. Specifically, he said the dollar is “getting too strong” and later supported a low interest rate policy, suggesting he might keep Janet Yellen as the Federal Reserve chair.

Learn what drives the price of gold in this brief four-minute video!

The SPDR Gold Trust ETF (NYSE:GLD) rose $0.03 (+0.02%) in after-hours trading Monday. Year-to-date, GLD has gained 11.52%, versus a 4.94% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 33 ETFs in the Precious Metals ETFs category.

About the Author: Frank Holmes

frank-holmesFrank Holmes is the CEO and chief investment officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal, and in 2011 he was named a U.S. Metals and Mining “TopGun” by Brendan Wood International. He is also the co-author of The Goldwatcher: Demystifying Gold Investing. More than 30,000 subscribers follow his weekly commentary in the award-winning Investor Alert newsletter which is read in over 180 countries.

Under his guidance, the company’s mutual funds have received recognition from Lipper and Morningstar, two trusted independent financial authorities. In 2015, Mr. Holmes led the company into the exchange traded fund (ETF) business with the launch of the U.S. Global Jets ETF, which invests in the global airline sector.

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