Gold Price $/Ounce
From its post-crisis low of $1,051, the price of gold has risen more than 35% through July 2019, breaking above $1,400 to a level not seen since May 2013.
Gold’s 10% rise since the end of May 2019 is especially noteworthy given that it has coincided with dovish forward guidance from the Fed and ECB, both of which are indicating an easing of policy in the months ahead.
Might this recent price increase represent an expectation of higher inflation on the back of easier monetary policy?
That’s not an unreasonable explanation, but it doesn’t align with the bond market’s current projection of 1.6% annualized inflation over the next five years.
If the increased demand for gold isn’t for the purposes of an inflation hedge, another explanation could be an increase in demand from either consumers or investors.
Stronger economic growth in recent years may be contributing to increased consumer demand for jewelry and other products made with gold.
Or, conversely, fear of an economic slowdown combined with geopolitical tensions might be behind increased investor demand for gold as a safe asset and portfolio hedge.
To the extent that gold’s recent price increase is due to its appeal as a safe asset, portfolio risk management may prove to be increasingly important in the weeks and months ahead.
Unless otherwise noted, data is sourced from Bloomberg.
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