Runaway inflation drives gold to a 5-month high
Investors flock to traditional safe-haven asset
Gold continued to trade upwards on Thursday, bolstered by mounting anxiety about the rates of inflation seen in the largest economies of Asia, Europe and North America.
The yellow metal has risen by almost 8% in the past six weeks as investors increasingly looked for inflation hedges – peaking at $1,868.87 yesterday.
Easily transportable, fungible and verifiable, gold has been a consistent store of value dating back into antiquity.
The commodity floundered through much of September and October as investors anticipated the Federal Reserve tapering the Covid quantitative easing (QE) programme – the process by which central banks injected money into their economies by buying back government bonds.
However, the view held by many of the world’s central banks that runaway inflation would prove to be “transitory” has increasingly been called into question.
Investors are also wary of assertions that the phenomenon is the result of pent-up post-pandemic demand and supply-chain issues, not excessive levels of QE and record-low interest rates.
On Wednesday, Germany’s statistics office Destatis announced that inflation in Europe's largest economy rose from 4.1% year-on-year in September to 4.5% in October.
That same day saw the National Institute of Economic and Social Research warn that inflation is on course to hit around 5% in the United Kingdom next year.
Last week, Bank of England governor Andrew Bailey said that he was “very sorry” for the effect of rising prices on British households, admitting: “Inflation is clearly something that bites on people’s real household income.”
Bailey recently disappointed markets by deciding, along with his fellow Monetary Policy Committee (MPC) members, not to raise interest rates from their record low levels. In the run-up to the MPC meeting, both he and the BoE’s chief economist Andy Haldane had signalled such a move was likely.
China, the largest economy in Asia and the second-largest economy in the world, is also contending with runaway price rises that have prompted an energy crisis in a number of northeastern provinces.
Last month, China’s Consumer Price Index rose at the fastest pace since September 2020, while the Producer Price Index surged 13.5% to a 26-year high.
In the US, the world’s largest economy, consumer prices rose by 6.2% in October, a 31-year high.
By 10:40 (GMT) on Friday, spot gold was trading down slightly at $1,849.49.