Rising inflation could be easing—a move that could certainly help boost gold.
Historically, gold has been seen as an ideal inflation edge. That’s exactly what investors need given the way inflation fears have made equities more volatile this year.
“The gold market is holding on to gains near session highs as inflation pressures look to have peaked, meeting economist expectations.,” a Kitco News report noted. “Wednesday the U.S. Labor Department said its U.S. Consumer Price Index rose 0.5% in July, after a 0.9% rise in June. The data was in line with consensus forecasts. For the year, the report said that headline inflation rose 5.4%.”
A couple of other key movers for gold include the movement of oil prices and used car prices. A consumer price drop in both should also help dampen inflation and, thus, help gold prices tick higher.
“Looking ahead, a stabilizing in oil prices and a likely drop in used car prices at some point will help cool the headline inflation rate, but production bottlenecks and shipping delays remain as upside threats in upcoming months,” said Avery Shenfeld, senior economist at CIBC. “But the more important issue for the Fed is that solid wage gains this year, ample consumer purchasing power, and tighter labour markets come 2022, could keep core inflation from descending enough to achieve the roughly 2% core PCE price pace that it has penciled in for next year.”
Last year, gold prices hit elevated levels thanks to the pandemic. Stimulus packages and vaccinations have renewed a risk-on sentiment in late 2020 and 2021, putting a clamp on the precious metal.
Mining for Opportunities
Investors looking for a golden opportunity without trading prices directly can look at miners. One such opportunity is the Sprott Junior Gold Miners ETF (SGDJ ), which tracks small cap gold mining companies, focusing on small companies with strong revenue growth and price momentum, two factors that have historically predicted long-term stock performance.
The portfolio, which holds roughly 30 to 40 stocks at any given time, tracks the Solactive Junior Gold Miners Custom Factors Index. It is rebalanced semi-annually, ensuring that it reacts to seize opportunities in a timely fashion and keeps its holdings optimized.
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