Inflation Remains Hot

Inflation was running red hot heading into the fall, a strong underlying positive for the precious metals market. 

The so-called core rate of inflation, which excludes volatile food and energy prices, climbed at an annual rate of 6.3 percent in August, an increase from the 5.9 percent increase in both June and July. That acceleration powered a jump of 8.3 percent in the overall Consumer Price Index in August, compared to the same month a year ago.

While the price hikes present a challenge to American households, for investors in gold they are a bullish sign. History has shown that gold outperforms other assets when inflation is high. 

Indeed, gold has outperformed virtually all other financial assets during this tumultuous year in financial markets, as stocks and bonds have tumbled. Yet, as of mid-September, the price of gold was slightly lower than it was at the beginning of 2022. This may present an opportunity for long-term investors.

Over the past half century, gold has averaged annual gains of 22.5 percent during periods when the U.S. Consumer Price Index has been above five percent, according to a World Gold Council analysis. When the CPI has been above three percent, gold has delivered an average annual gain of 14 percent. 

Another encouraging sign: gold typically outperforms other commodities when inflation is high. That has not been the case this year. But, the World Gold Council analysis indicates gold lags other commodities when commodity prices are driving inflation, as they are now, but it catches up and outperforms during the following 12-18 month period.