No Inflation so Gold Continues to Plu...
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Apr
17
Jonathan Yates
No Inflation so Gold Continues to Plunge
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It was not supposed to be this way for The Yellow Metal.

When Federal Reserve Chairman Ben Bernanke announced a round of quantitative easing in his speech at Jackson Hole in August 2008, the price of gold soared.  It responded that way to the announcement of Quantitative Easing III in September of last year.  But since that period, it has plunged below very significant trading price levels .

Prices fell 0.2% last month in the United States with food and energy (oil/gasoline) costs included. That is not good for gold.  The Yellow Metal needs for there to be inflation in an economy so there is a loss of confidence in the fiat currency.  That is clearly not happening in the United States as the dollar is strong and the annualized inflation rate is about 1.5%, versus 2.0% as of February.

Gold was bought to defend against inflation.  Well, it is not happening.  For there to be inflation, there needs to be too many jobs chasing too few goods.  There should be growth in an economy for there to be inflation.  That is not happening as fuel costs are falling due to fracking.  Growth in China is off, which is keeping prices lower, too.  Gold is losing ground, and investors are selling The Yellow Metal.

With growth in China down, energy costs should continue to fall.  All commodity costs should continue to plunge, as a matter of fact.  That should take gold down even lower.  With Europe in a depression and Japan approaching one, according to Carl Weinberg of High Frequency Economics, investors are fleeing to safe harbor assets.

But that is not gold this time.  It is the United States Dollar.  The chart below shows how the exchange traded fund for gold (GLD) has fallen, off 17.79% for the last quarter, as the exchange traded fund for The Greenback (UUP) has remained stable, gaining 2.40% for the last quarter.  That is what results from a lack of inflation as investors pile into the fiat currency rather than the hard metal!



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