Gold price needs 7% inflation to really move, and we have that now - Jeff Christian
(Kitco News) - Headline inflation has hit another 40-year high at 7.5% but many gold investors are wondering why the yellow metal has not kept pace with rising consumer prices throughout 2021.
Jeff Christian, managing director of the CPM Group, said that gold has historically needed much higher levels of inflation that what the U.S. reported in 2021 before it moves higher. More specifically, gold needs inflation to be over 7%.
"Gold responds to inflation when inflation is over 7%. We're there now. For the last 40 years, inflation hasn't been an issue," Christian told David Lin, anchor for Kitco News. "Is gold an inflation hedge? Yes, insofar as it diversifies your portfolio and diversifies your wealth and the denomination of your wealth away from your domestic currency into gold."
Importantly, gold does not track the consumer price index (CPI) in lockstep, Christian said.
"The consensus is that gold's purchasing power is stable over time, but if you look at it quantitatively, if you [look at] real (inflation adjusted) gold prices, they haven't been stable over time, and they haven't even been stable since gold prices were freed to float in 1968. They've been all over the place. Anybody who thinks that gold is going to move lockstep with inflation is simply wrong. Gold is good to have in inflationary times but it's not the cure-all," he said.
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Christian's research showed that despite lackluster performance, gold and silver are still competitive assets when compared to stocks, citing many years throughout the last two decades where the metals have outperformed equities.
Even though inflation is now above 7.5%, gold is still likely to trade only flat for the remainder of 2022, Christian said.
"Our outlook for gold is that it's going to be basically flat and I think that [last week when CPI was released] was a perfect example of what we're seeing. High CPI numbers came out, gold rose sharply…and then it came back down. I think that that is maybe a parable for the whole year. We think that the price is not going to fall sharply but we're also not looking for a sharp increase. We wouldn't be surprised to see the price spike up to $1,860 [an ounce] within the next four or five months. We wouldn't be surprised to see the price drop back to $1,790 within the next four to six months," he said.
For more information on how silver is going to perform in 2022, watch the video above.
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