If inflation is rising, why is gold price still down? Lobo Tiggre answers

March 1, 2021

New York (Mar 1)  Gold has held a strong relationship with inflation expectations but more importantly, gold tracks real interest rates, so if nominal rates rise faster than inflation, then gold would see pressure, said Lobo Tiggre of The Independent Speculator.

"Look at commodities prices. Look at copper, and nickel…multi-year highs. But even things like food and oil also heading upwards, but the headlines about food that strikes me as the kind of thing that the powers that be really can't ignore. It could be a while before higher copper prices translate into higher prices into Walmart, but if grains are going up, that translates very quickly to higher food prices,” Tiggre said.

When the real interest rate, which is the nominal yield minus the inflation rate, trends up, gold tends to fall under pressure.

"We're looking at expectations…the real rate, you take CPI and you take the nominal rate and you subtract the CPI. You have the nominal rate moving with the [inflation] expectations, now, but you have CPI not moving yet, so mathematically, you're going to see a situation where the real rate, it's not turning into positive territory yet but it's less negative and that directional change matters,” Tiggre said. 

Should the stock market fall even more as yields rise, the Federal Reserve may have to intervene, Hug said.

"If that Dow [gets] into serious trouble, I think the Fed steps in here," he said.


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