3 Reasons Why There's Further Upside Potential For Gold Prices

Gold may be off its 52-week highs, but the precious metal is still up more than 15 percent for the year through September 17. This appears to put gold on a path for its best year since 2010, when it gained just under 30 percent.

I believe buying the dips in gold right now could turn out to be a wise investment decision. I see a lot happening at the moment—from an unprecedented $17 trillion in negative-yielding bonds worldwide to heightened geopolitical threats—that might boost investors’ appetite for the metal, which has a history of holding its value in times of crisis.

#1 U.S. inflation is finally starting to heat up.

When President Donald Trump took office in January 2017, many market watchers expected consumer prices to climb rather quickly due to his protectionist policies and general skepticism of free trade agreements. Except for a blip here and there, inflation has remained pretty steady, even after hefty tariffs were imposed on goods imported from China.

That may be set to change, though, if the August inflation reading is any indication. “Core” consumer prices—which exclude volatile food and energy prices—rose to an 11-year high of 2.4 percent growth year-on-year. Not since September 2008 have prices expanded so fast.

Also of note: August saw the biggest monthly rise in medical care costs since 2016 as well as record increases in health insurance prices.

And remember, this doesn’t include the effects of the 15 tariffs on $112 billion in Chinese goods that the U.S. imposed on September 1.

US core inflation just rose to its fastest rate since 2008

In the past, faster inflation has been constructive for gold prices. That’s because inflation, by its nature, destroys your purchasing power, and to limit these losses, investors have traditionally turned to the yellow metal as well as gold mining stocks.

So if you believe inflation is prepared to surge even more, it might make sense to add gold to your portfolio.  

#2 Negative yields in the U.S.?

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Linda Willis 1 month ago Member's comment

Great news for us gold bugs!