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> Inflation: During periods of moderate to high inflation, gold and commodities tend to do extremely well. Equities outperform bonds more often than not, but it
by aazaa 5y ago
> Inflation: During periods of moderate to high inflation, gold and commodities tend to do extremely well. Equities outperform bonds more often than not, but it depends on the type of equities and their starting valuations, and therefore have a huge variance. Real estate does well, mainly because leverage attached to it gets melted away from inflation. Bonds do poorly in inflationary environments.
The article doesn't talk specifically about gold, but I believe it should. From this chart, you can see that gold started an upward trend in price pre-pandemic that peaked in August of last year, and has since declined noticeably:
https://www.tradingview.com/symbols/XAUUSD/ https://www.tradingview.com/symbols/XAUUSD/
Gold is supposed to be the canary in the coal mine for inflation. The slightest whiff of inflation is supposed to send the price soaring, usually led by gold mining stocks.
This hasn't happened. As the price of copper, lumber, other base commodities, houses, used cars, and possibly even labor, has surged, gold has barely budged.
What does gold's lackluster performance so far say about the future direction of inflation?
That's the question people worried about (hyper)inflation should be asking themselves.
Many in the gold market claim that the price is being manipulated by central banks, by the paper derivatives market, an other forces.
But it's very hard to believe that literally every other commodity is flying to the moon while gold is stuck in the basement due to "manipulation."
Something isn't adding up here.
- nine_zeros 5y agoCrypto
- aazaa 5y agoOr... crypto and the commodities have it backward. The gold market is right. Prepare for the opposite of what the media are hyperventilating about now - a ridiculously strong dollar and deflation.
- deelowe 5y agoMy advisor is saying the fed is try to staving off deflation still.
- nine_zeros 5y agoCrypto has provided an alternative to gold. The same printed dollars that would normally go to gold is flowing into crypto. The new generation of gold miners are not mining gold. That's why gold hasn't risen dramatically. Crypto is absorbing the inflation.
- tinyhouse 5y agoPeople who fear inflation not gonna put their dollars into crypto. Too speculative. They would buy land or silver etc.
- imaginenore 5y agoI fear inflation and I put 99% of my savings in crypto years ago. It's been going insanely well, to put it mildly.
- deleted 5y ago[deleted]
- jonnycoder 5y agoI think that is possible. If you have a good income, then a hedge would be gold and silver. If the dollar gets strong then so does your purchasing power. If not, then gold/silver hedge against that. Of course it also helps to have bought a house when prices were low going back to 2012ish. For some of us, who cares if housing drops 50%
- imaginenore 5y agoHow the hell would you have deflation, when the government is printing dollars at ridiculous rates? When prices of everything are going up. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL
- omalleyt 5y agoGold went up a lot in 2020. It’s underperformance in the past few months is because Treasury rates ripped higher, which made owning bonds more attractive. However, rates can’t rise much more, or the UD gov’t will be unable to service its debt. Therefore, gold has begun to climb again
- nl 5y ago> However, rates can’t rise much more, or the UD gov’t will be unable to service its debt. Treasury rates are less than 2%. Prior to 2019 they have never in history been lower[1], except for one month during 2016. I don't think the market is worried in any way about the ability of the US to service a 2% rate. [1] https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart https://www.macrotrends.net/2016/10-year-treasury-bond-rate-...
- nostromo 5y agoInterest rates aren’t fixed at 2%. If they rise even to historically low standards, the federal government could have trouble servicing its debt.
- nl 5y agoOf course they aren't fixed! That's the point!! They are dramatically lower than historical averages. Claiming that makes it hard to service seems counter intuitive!
- pmorici 5y agoLarge share of federal government debt is short duration meaning it has to be rolled over at current rates on a regular basis. Rising rates would definitely drive up costs dramatically.
- nl 5y agoThat's what the bond price is! It shows how much room there is for increased costs before there are any real concerns.
- gregwebs 5y agoLyn Alden actually also has one of the best explanations of the price of gold! [1] It is tightly correlated to the broad money supply modified by changes in real rates (10 year - inflation). In August we saw the 10 year rate start rise and gold start falling. Now the 10 year is consolidating while we have inflation: gold prices seem to have finished their consolidation as well and are going up a bit. Whether it is a good time to buy gold now really depends entirely on what happens with the 10 year treasury rate. With that being said, the movement of the 10 year and gold are slow, so it isn't that hard to exit a position in gold. [1] https://www.youtube.com/watch?v=cc5YJZcswvI&t=30s https://www.youtube.com/watch?v=cc5YJZcswvI&t=30s
- deleted 5y ago[deleted]
- chii 5y ago> gold's lackluster performance so far say about the future direction of inflation? some of the gold bugs who would've pushed up the price of gold has switched over to bitcoin (and other cryptos).