Despite the recent pressure that has been exerted on gold prices over the past few weeks, the strong uptrend continued this week on continuing fears about global inflation. While the Federal Reserve continues to assert that core inflation remains well controlled, many industry insiders remain skeptical. This is reflected in the pricing of fed fund futures (the best indicator of beliefs about future behavior of the Fed) which place the chance of a rate hike before mid-2012 at less than 40%. Likewise, a typical consumer is seeing higher prices both at the pump and at the grocery store leading to belief that inflation is very much present.
While Congress continues to hammer away at the so-called “evil speculators,” participation on the market has never been higher. This ranges from an increasing asset base in Exchange Traded Funds (ETFs) like the SPDR Trust (GLD) and others, to increased investment in coins and other forms of the physical commodity.
In April, the Treasury reported that sales of their proof American coins reached an all time high, with sales growing month-over-month by over 9%. Similarly, the message boards and chat rooms are rife with retail investors extolling the virtues of an investment in gold, and explaining the lengths that each has gone to increase his or her leverage.
While it is easy to blame these inflationary pressures on either the recent financial crisis or on the rising price of oil alone, there are other critical factors at play. Most notably are the European Debt Crisis, that continues to threaten the very fabric of the eurozone, and the uptick in Chinese production. The former is compounded by the turmoil in play at the IMF, while the later is driven by a regular seasonal increase in production. Higher energy prices do exacerbate both situations, but are not alone the cause.
Given the clear pressures of global inflation, professional and retail investors alike are using gold as the best store of value to benefit in an inflationary environment.
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