Inflation Pressures Building

This means that the central bankers will not hike interest rates or roll back bond purchases to slow things down. And when government-reported inflation rises well above 2% while interest rates remain at lower levels, the resulting negative real interest rates will underpin gold prices and could potentially lead to substantially more gold buying and higher prices.

The Win/Win Scenario

The gold market may very well have entered a win/win scenario.

The market has been buoyed by ultra-low interest rates, quantitative easing, and the threat of rising price pressures. Such conditions put the dollar under pressure, and gold’s proven record as a historical inflation hedge continues to create a tailwind for the metal’s market.

And even if the Fed ultimately hikes rates, if history is any guide, these monetary alchemists who believe they can create wealth by printing it will be behind the curve – and gold will still benefit from real interest rates that continue to be in negative territory.   

The gold market may, therefore, be headed for a further ascent regardless of what the Fed does or does not do in the years ahead.

Price action in the yellow metal has been to the downside since the all-time high achieved last August, although that downtrend may have now run its course.

In recent days, bargain hunters and long-term investors have stepped into the market, and gold may soon reverse decisively and make a new run at its all-time high of $2,060 an ounce.

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