Gold shines the brightest when the chips are down
Everyone who has bought anything in the lastyear knows that inflation is real. However, this week we found out just how badit is.
Wednesday, theU.S. Consumer Price Index saw an annual rise of 6.2%, the highestlevel in more than three decades. And while the idea that prices are risingisn't new, according to some economists and market analysts, the fear is thatthe U.S. central bank is losing control of inflation.
The Federal Reserve appears to be losing control because there is not much theycan do to stop the current price in prices. Inflation is being driven by aglobal supply crunch. A rate hike will not bring more microchips online orincrease the amount of food in the grocery store. Rate hikes certainly won'tbring more oil production online to lower gas prices.
Before you dismiss the growing threat, we are starting to see the economicimpact of rising inflation.
This morning, preliminary datafrom the University of Michigan showed that consumer sentiment inNovember dropped to its lowest level since 2008 as consumers were dealing withthe effects of the Great Financial Crisis. The most significant factor behindthe drop in sentiment was inflation.
Some economists will point out that weak consumer sentiment leads to lessconsumption, leading to lower growth. So the prospect of stagflation is nowgrowing.
This fear is what has lit a new fire under gold and propelled prices to afive-month high. The precious metal has been seeing its best weekly gains sinceearly May. December goldfutures last traded at $ 1865.90 an ounce, up more than 2.6% fromlast week.
Gold is doing what it does best. Gold is the one solid asset that investorscling to when the chips are down and fear sweeps through markets. It has shownits value time and time again.
What makes gold's breakout rally even more impressive this week is when youlook at it in correlation to the U.S. dollar. The U.S. dollar Index is endingthe week above 95 points, a 15-month high.
Gold can fight against the U.S. dollar's strength because as inflation grows,the purchasing power of the U.S. dollar continues to weaken. The latest CPIdata from the U.S. showed that food prices rose 5.3% over the last 12 months.
To put that into perspective, consumers are looking at the most expensiveThanksgiving dinner in history just ahead of the holiday season.
However, gold has been able to maintain a stable purchasing power over theyears.
That is it for this week. Have a great weekend
By Neils ChristensenFor Kitco News
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