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US Inflation data out and all we can think about is Gold, Gold and Gold!

US Inflation data just hit the wires and the CPI came in as expected with a slight beat. Drilling down into the numbers we focused on food inflation, an increase of 0.4% on the month and +3.8% on the year. The fact that the FED, in 2020, altered one of their mandate parameters (curbing inflation) from a simple 2% inflation target to pursue inflation that averages 2% over time, speaks volumes with regard to the inflation debate. It’s always a good thing to have some inflation but too much of it has dire consequences.

So clearly inflation is here to stay for a while and we believe that Central banks will be slow to react in curbing it, given that they have other worries created by the Coronavirus pandemic. So how does one hedge against inflation? Include a healthy dose of Gold assets within a balanced portfolio is the simple answer.

After hitting its all-time high (ATH) in July last year, gold prices have been in corrective mode ever since but we believe its time to consider, to either add to existing longs or initiating new long positions in the yellow metal. Below we showcase a few charts featuring Gold.

1. Inflation could get out of control before spurring Central Banks into action.

2. Gold – Weekly Chart: Gold prices still contained within its +/- 2 and 3 standard deviation regression channel from the 08/2018 lows.

3. Gold in other currencies (Broadview) – Daily Chart: It has all been a mean-reverting exercise after hitting the ATH. Directional move soon!

4. Gold – 4hr Chart: $1816/$1800 short term support, price breach below support zone, brings $1765 in focus.