GOLD PRICE NEWS - The gold price reclaimed the $1,160 level after declining for two straight days, consolidating its April price gains. The price of gold is higher by 4.3% this month alone as gold, oil, copper, and the stock market continue to grind higher on the back of an unwavering commitment from central bankers across the globe to reflate the economy.
Whether it’s a bailout of a “too big to fail” financial institution or a sovereign nation such as Greece, the can is being kicked down the road. There are scant examples in the public arena of de-leveraging and fiscal austerity, both necessary to create healthy balance sheets from which real growth can emerge. Gold prices have risen in terms of nearly every global currency as nation after nation sacrifices the integrity of their currencies and puts short-term political expediency ahead of longer-term solutions.
The justification is tame inflation figures, which gave confirmation once again to policymakers that price rises are contained. Consumer Price Index (CPI) figures came in near market expectations, as the core CPI rose 2.3% year-over-year and 0.1% month-over-month.
Government statistics on inflation continue to confirm the Fed’s outlook that inflation is not an issue, allowing the central bank to maintain an expansionary zero interest rate policy indefinitely. However, while the price components that comprise the CPI may not be rising, asset prices are soaring. The S&P 500 has surged 80% off the March 2009 low, while commodities such as oil and copper are up 142% and 161%, respectively. Paltry yields from money markets have prodded investors to take more risk, a dangerous phenomenon that has the potential to end badly.
The distortions being created by cheap money are leading to a new round of misallocation of capital and have the potential to spawn new asset bubbles. The rising gold price, while it has lagged its more cyclical counterparts, is another example of the flight to assets that will maintain their purchasing power in an era of global currency degradation.
