Gold Price Driver #2: Inflation
Another big reason for people to jump on the gold bandwagon is because of commodity inflation. Because of monetary policies in the U.S., including quantitative easing and ultra-low interest rates, the inflationary picture is looking ugly to many investors.
Here are some headlines to chew over:
- In November, the average cost of a Thanksgiving dinner jumped a whopping 13% over the previous year because of inflation.
- The annual inflation rate peaked at a red-hot 3.9% this fall and has cooled to “only” about 3.5% currently.
- Many experts, including renowned Quantum Fund founder Jim Rogers, have ramped up criticism of inflation methodology, saying it paints a rosier picture to protect politicians. Considering the ugly outlook with these numbers, it’s disturbing to imagine they are even worse if this criticism is valid.
The biggest fear during the financial crisis was a Japan-style deflationary spiral — where falling prices lead to decreased demand which leads to falling prices, and so on.
America has tried to inflate its way out of such a disaster. It worked. But now we are left with the hangover of inflation as a result, and that in turn is going to take time, policies and patience to resolve.
In the meantime … buy gold.