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Sunday, December 16th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Does Gold Love Low Inflation?

As of this writing, gold futures are up $22, providing much needed relief to SPDR Gold Trust (GLD) holders. What is fascinating are the circumstances behind the price increase.

First we had Jean-Claude Trichet, the ECB president, talk down his inflation expectations, which were viewed contradictory to what he stated earlier last month, and had been viewed as a prelude to a rate increase. Traders had interpreted his remarks in the same context as when he delivered a similar message in 2006, and had positioned themselves for the coming rate increase. Traders had broadcast the fact that his message was understood this time around, and over the last three weeks the euro rose from $1.30 to $1.38. After the ECB’s announcement and Trichet’s press conference, the euro gave back over 1% to trade recently at $1.3630. Maybe Trichet’s message was too well understood for his own taste.

I published an article on the subject on Feb. 2; now Trichet is apparently changing his tune — and is caught between a rock and a hard place — because the game is very different from 2006. According to Bloomberg, “Trichet said risks from rising prices are ‘broadly balanced,’ causing investors to pare bets on an increase in borrowing costs even after euro-area inflation accelerated the most in two years in January.” And gold loved it!

But wait — Dr. Bernanke had something to say this week as well. According to MarketWatch, the Fed chief noted at the National Press Club that “inflation ‘remains quite low’ even though ‘highly visible’ prices like gasoline have risen at a significant pace.” And gold loved it even more!

There must be an explanation. Maybe gold increased because the euro decreased? Probably not, because after the ECB announcement both the euro and gold decreased; gold only started to rise in earnest after Bernanke spoke. And then there’s that pesky inverse realtionship with the dollar. Oh, that’s because the Fed will print more money. Well, they have been sticking to that one for forever.

Fundamentally speaking, there are not explanations, simply technicals, technicals, and then more technicals!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The original article is published at

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