Rising inflation and record copper prices point to undervalued gold market - Felder Report
In a report published Wednesday, Jesse Felder, founder of the Felder Report and former analyst at Bear Stearns, said gold prices should be well supported as copper prices highlight higher inflation.
The copper market has seen a confluence of bullish factors as increasing demand and falling supply push prices to record highs. While off their highs from last week, July high-grade copper futures are still seeing significant gains so far this year, last trading at $4.70 per pound, up more than 32% year-to-date.
Felder noted that earlier in the year, as copper made its initial run to record highs, he warned that core inflation was too low and could start to trend higher.
"Core inflation in April came in at nearly 3%, surpassing even most the aggressive forecasts. And while the economists at the Fed would encourage us to view this surge as "transitory," copper prices would appear to suggest otherwise. According to the doctor, inflation should generally trend higher from its recent lows for a prolonged period of time," Felder said in the report.
Markets received another look at the looming inflation threat Thursday as producer prices saw their biggest annual rise on record, jumping 6.2% in April.
Despite rising inflation, the gold market has been struggling to find new bullish momentum as prices briefly fell to a one-week low following the consumer inflation data. June gold futures last traded at $1,825.50 an ounce, up 0.14% on the day.
However, Felder recommended that investors look past the short-term volatility.
"Should these nascent trends in inflation and interest rates prove to be more than 'transitory,' as Dr. Copper would seem to suggest, it would appear that the gold price could be undervalued," he said