‘Transitory Inflation’ Leading To A Bullish Gold Market, What Should You Do?

Two major fundamentals of gold investment are – diversifying the risk in the investment portfolio and keeping the asset as a hedge against inflation. The present global economic status could not be more appropriate on these 2 grounds as the USA is dealing with a ‘transitory inflation’, and volatile equity and bond yields. Present inflation is being identified as ‘transitory’ because it is an impact of the post-pandemic period, according to experts. With strict monetary policy by the US Federal Reserve, and faster manufacturing growth and employment opportunity, inflation might be in control in the next year. On the other hand, the equity market and treasury yields are rising and fetching around 1.52%, with Fed’s strong confidence in the economy. But as the equity market can go volatile again, any time, one investor must be ready for it. Fitch Ratings thinks US AAA sovereign credit rating could be under pressure if the Fed does not address the debt ceiling issue soon. In that case, gold can emerge as a savior again.

A Kitco Gold survey recently stated the participants’ views, – on the Wall Street, gold is going 50% bullish and 29% bearish, and 21% at a neutral position, while on the Main Street gold market is going 48% bullish and 38% bearish, and 13% at a neutral position. The survey also says, “Bullishness among retail investors has picked up.” The last traded spot gold price was $1762/oz, and Comex December futures stayed around $1758 and more. This bullish trend is expected to strengthen in October, waiting for Fed’s comment on their monetary policy in the November meeting. Commenting on this bullish trend of gold and inflation, Ole Hansen, Head of Commodity Strategy, Saxo Bank told Kitco, “Gold is slowly disconnecting from dollar and yield strength as the inflation story becomes anything but transitory.”

Concerns of traders and investors

Asset trading and investing are treated differently. On gold, platinum, and silver trading and investing, some experts think, “When they are traded, you use a method and a plan to enter and exit with strict rules on both. When you invest, you also have a set of rules but not as stringent.” Keeping this in mind, one investor must keep faith in gold for the long term. In early October, gold rates are gaining promisingly, but any scale of Fed tapering will pull down the prices later this year. Experts are more bearish about 2022’s gold rate anticipations. So, what should the investors do? Should they stop buying the asset? Rather the opposite. They can invest in the asset class keeping the long haul portfolio in mind. Because, even if the tapering happens from December, this year or early 2020, the Fed will keep buying government-backed bonds, only the pace will be slower.

Traders, on the other hand, can be more stringent to fix their entry-exit strategies, as the gold prices will impact them more in the short-term period. On this note, we can derive Christopher Vecchio, Senior Market Strategist, DailyFX.com comment as he said, “I would expect gold to rally as this crisis builds, but we have been here before, and when these issues are resolved, prices could fall like a brink.” So, traders should be more strict and cautious about that.

Indian investors should not worry about the current bullish or bearish sentiment a lot. India is the second-largest importer of gold, and domestic gold consumption is only rising with time. RBI, the Indian central bank is also keeping faith in the asset class and increasing gold reserve. Hence, walking on the same line of thoughts will help them to understand India’s policy on the asset class, which is bullish at present.