Gold bullion and related exchange traded funds have been touted as a tool to hedge against inflationary pressures. However, gold ETFs may not benefit as much if inflation spikes this time around.
Analysts argue that the prospect of a slightly higher-than-expected inflation reading after Wednesday’s higher April PPI number could actually hurt gold’s outlook, report Patti Domm for CNBC.
“The PPI is a mixed bag for gold,” Jim Wyckoff, senior analyst at Kitco, said in the article. “On the one hand, inflation is a positive for gold because it suggests money could flow out of paper assets into hard assets, so that’s bullish but the bearish part of the PPI is it could induce the Fed to continue its tapering on an even more aggressive pace.”
On Wednesday, the government revealed that the Producer Price Indcx inched up 0.6% in April, above the 0.2% expectations. Traders are waiting to see if the higher PPI reading will translate to a higher Consumer Price Index reading on Thursday, which is expected to increase 0.3%.
Gold has acted as a traditional hedge against rising inflation by helping investors maintain or even increase wealth. However, investors may have to cheer for low inflation in the current environment.