Last December the Consumer Price Index in the U.S was reported to be 7%, the highest it has ever been in 40 years. This pushed the price of gold and silver to new heights. It’s not only the U.S that has seen considerable increases in the price of fuel, foo, cars and housing but other countries including Australia have been experiencing the same thing. However, for a while the US Federal Reserve called the rising inflation transitory but after jumping from 5 to 7 percent. Because of this, there is a strong likelihood that the Federal Reserve will increase its rate sometime in March or April. Because of the Federal Reserve’s failure to control inflation, the dollar has been struggling to make serious gains.
The weak dollar has affected the price of precious metals with sellers cashing in at high market prices and other investor digging in and buying more as anticipation of further gains in the near future. Since December 2021 gold has gained 2.5% and silver rose by an incredible 6%
For the first three weeks of January 2023, gold hovered just above $1,800 and silver managed to edge up over $23 an ounce.
Silver and gold might have had some made some gains, they were nowhere near what was predicted.
Precious metals have a good track record of performing incredible in the face of run-away inflation, however the price of gold might be lower than it should be. There is no telling how long this could be the case. This could be temporary. The inflation will erode corporate returns. Not only will corporate earning be affected but the price of gold should reflect the truth about inflation.
Silver and gold has been shown itself to be a reliable safe haven assets. Demand for these precious metals is likely to grow over the last couple of years. Even with the advent of cryptocurrencies people still trust a physical asset than anything else. The return on cryptocurrencies might be crazy high but it is still a new and very volatile market. Gold and silver are a great hedge against inflation and economic uncertainty.
The number of global threats over the last 5 years have underlined how important holding a tangible asset like gold or silver can be. It has proven to be more useful than having cash stashed in your house. Even central banks around the world are buying up gold because of the rising global inflation. It would seem that the world looks to U.S for direction with the dollar being the default global currency, if the US dollar is struggling but other currencies are stronger then the price of gold might be low enough to be attractive to buyers.
During the 1970s the inflation rose by multiples. Since then, the economy stabilised and inflation dropped to single digits. Ever since then, through various political and economic ups and downs the Fed time around the US Fed seems to be struggling to strike a balance between raising interest fates high without crashing the markets. If inflation continues for much longer prices are most likely to continue on for years.
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