Inflation Could Be Dulling Risk Appetite, Which Is Good for Gold

Rising inflation is the talk of the town in the capital markets, and gold investors are listening closely as a dulling risk appetite could prove beneficial to the precious metal’s future price gains.

So far in this week’s trading session, gold is still capped by that $1,800 ceiling that it can’t seem to smash through just yet. Looking forward, as investors sense that inflation may not be as transitory as market experts predicted, a risk-off sentiment could push a move into gold.

“We see undertones of support coming from the general idea that inflationary pressures are going to be enough to hold gold up in the midst of an environment where we see the Federal Reserve slowly moving towards reducing asset purchases,” said David Meger, director of metals trading at High Ridge Futures.

Gold’s role as an inflation hedge could serve its purpose as investors start to fret more about rising consumer prices. Furthermore, an environment where rising inflation is paired with slow economic growth (stagflation) could provide further tailwinds for gold demand.

“There’s more risk aversion in the market and gold is benefiting from that, coupled with concerns about inflation and cooling of the global economy,” Commerzbank analyst Daniel Briesemann said.

Briesmann also noted in the associated CNBC article that stagflation could push gold prices up to the $1,900 per ounce mark. The same environment could also push silver prices higher.

“If we have a weak economy coupled with a drive towards needing and using more silver, you’re going to have base metal mines shutting down that produce silver as by-product, just as an enormous demand for silver comes to the fore,” said James Anderson, CEO and chairman of Guanajuato Silver Company. “In that environment, you could easily see silver go to the $40 price range. But it is more likely we will see silver at $30 before it hits $40. I can see it hitting $40 halfway through next year.”

Two Precious Metals, One Fund

While gold has its advantages as a store of value, silver can have higher utility with its usage in a variety of applications. If investors are unsure of whether to add gold or silver to their portfolio, they can have both with the Sprott Physical Gold and Silver Trust (CEF).

CEF is a closed-end trust that invests in unencumbered and fully-allocated physical gold and silver bullion in London Good Delivery bar form. The goal of CEF is to provide a secure, convenient, and exchange traded investment alternative for investors who want to hold physical gold and silver without the inconvenience that is typical of a direct investment in physical bullion.

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