Consumer prices in all industrialized countries have risen sharply in recent months, yet central banks do not seem to want to change their monetary policy.
Find out why inflation occurs in the first place and what that means for the gold price here.
Inflation higher than it has been for years
In September 2021, inflation in Austria was 3.3 percent. And in Germany, the year-on-year inflation rate in September was as high as 4.1 percent.
Also on an EU-wide basis, with inflation at 3.6 percent, inflation was well above the 2 percent target set by the ECB.
In the USA, the inflation rate is even above the 5% mark - and has been for several months.
Inflation: come to stay?
The big question that economists and investors are currently asking themselves is whether the high inflation rates are just a temporary "outlier" or a phenomenon that will be with us for some time to come.
Proponents of the outlier hypothesis assume that the current high inflation rates are merely aftershocks of the 2020 Corona collapse. Because lockdowns, restrictions and the accompanying Corona measures caused a massive slump in the economy in 2020, energy prices also fell sharply last year due to the lack of demand.
Following a normalization of the economic situation, the price increase in 2021 would therefore be much more pronounced compared with the weak previous year.
In addition, there were still bottlenecks in the supply chains, which caused prices to rise in the short term. As soon as the Corona aftershocks had subsided, inflation would return to a normal level.
In contrast to the thesis of temporary and short-term inflation, more and more economists suspect that high inflation will become a longer-term phenomenon. This is because high inflation is an inevitable consequence of a loose monetary policy pursued by the leading central banks.
Inflation, Interest Rates and the Printing Press
In order to cope with the effects of the financial and sovereign debt crises from 2008 onwards, the central banks of the industrialized countries, first and foremost the FED and the ECB, switched to an extremely loose gold policy.
Low, even negative, key interest rates and the enormous artificial expansion of the money supply ("quantitative easing") were supposed to stimulate the economy and provide the economy with cheap credit. The problem is that this monetary policy, which may have made sense as a crisis measure, soon became the new normal.
In response to the Corona crisis, or rather to the economic consequences of the restrictions, cuts and lockdowns, governments and central banks have recently been pumping even more "cheap money" into the market. Money that is created out of thin air and inflates the money supply enormously.
If there is more and more of something more and more, the logical development is that the value of this thing falls.
This also applies to money. If there is more and more money, its purchasing power decreases and consumers have to pay more for goods.
What does the price of gold have to do with inflation?
Gold is an excellent way to protect saved assets against inflation. Because while central banks can create money out of nothing ("fiat money"), the amount of gold is finite.
Although the precious metal does not yield interest, it is a very safe investment because it can never completely lose its value. Also historically, one ounce of gold always received a similar commodity value. Therefore, it is generally assumed that with rising inflation, the demand for gold and thus the price of gold will also rise.
But some people are wondering at the moment why the gold price is not rising more clearly despite the high inflation figures?
Above all, investors' expectations are likely to play a role: A majority (still?) assumes that there will only be a short inflationary phase. Under this assumption, it may be possible to generate somewhat higher returns with other investments. At some point, however, the 1.5% interest on safe government bonds will be eaten up in a permanently inflationary environment. If investors then take refuge in precious metals, the price of gold will also move.
If the central banks continue to maintain their loose monetary policy (the ECB probably sees no reason to act), one can also expect a significant increase in the price of gold. Some analysts expect a gold price of up to 5,000 dollars per ounce in the medium to long term.
Since a rising gold price is also always an indicator of the decline of currencies, which serves both markets but also the population as a warning signal, the national banks have tried in the past through the bullion banks and the paper gold exchanges to influence the price of the precious metal to reduce the impression of loss of value and to prevent an outflow of money into gold.
Hedge assets against inflation
Defend your savings from devaluation! With gold, even smaller assets can be easily hedged, it is easy to transport and store.
With an investment in gold you are always on the safe side! Due to its limited availability, gold has been a lasting value for many centuries. You can rely on that!
