One of the biggest investment in gold is to hedge against rising inflation. US inflation expectations continued their climb in January and now staying above %2. Correlation between gold and inflation expectation turned to negative again. Taper tantrum fears for the end of 2021 is holding the bullion back for now but correlation usually turns around -45 as divergence deepens. Can gold hold on and reverse from around here or fears and profit-taking from the long uptrend overcome fundamentals, is still unclear.
But this time Eurozone inflation came to help too. Eurozone CPI has been below zero and was at historically low levels for months. Finally, with today’s data, it jumped to %0.9.
Gold will have another helper in the medium-term, Joe Biden. Biden’s aggressive $1.9 billion fiscal stimulus package will drive the inflation and also public debt higher which are both may give the necessary fuel to the next gold surge.
Gold investment still attractive among people despite many alternatives and a great performing stock market. Gold coin sales in January was at its highest since 2009 and the US Mint unable to meet the demand because of plant capacity.
Unlike silver, gold ETF holding remains flat since November’s fall. It may come to ETFs at the end. A new set of long may bring gold back to life or a surge in dollar index may trigger a new sell-off. But overall gold’s fundamental outlook point upward for 2021 so far.