Gold update: gold price continues to rise

Gold prices rose further this week after weaker US macro data. Last week, gold rose in value by 2.2%. This week it added 1.3%. The economy in the US, but also in Europe, continues to weaken while interest rates continue to rise.

China is going downhill economically. China’s central bank announced interest rate cuts this week to stimulate the economy. Gold has probably had the most headwind. At the same time, inflation is falling, but the bottom appears to be in sight.

A second wave of higher inflation cannot be ruled out. In the past, there were similar situations where the first wave of inflation was followed by a second wave with a higher top. Central bankers have misjudged inflation more often than correctly. The data shows that their vision is often a good counter indicator.

US jobs and core inflation slightly higher

The US jobs report for August was released last Friday. The expectation was that 170.000 jobs would be created. The actual figures were better and came in at 187.000 jobs. Wage development fell from 0.4% to 0.2%.

The figures for July and June were significantly revised downwards. The jobs figure is a first indication and is therefore not completely reliable. July’s job figure was cut from 187.000 to 157.000 and the June figure went from 185.000 to 105.000. The actual figures turned out to be a lot worse than the provisional figures. Unemployment rose from 3.5% in July to 3.8% in August.

Core inflation in the US appeared to have increased in July from 4.1% in June to 4.2% in July. Not shocking news, but an increasing number. In particular, the Fed looks at core inflation as its most important indicator. The chance of a rate hike by the Fed in mid-September is quite small. This is good news for gold, which largely explains last week’s gains.

Gold instead of euros

A frequently asked question from potential customers at Doijer & Kalff is why people buy gold. Most customers choose gold as an alternative to the euro. The Euro loses a percentage of purchasing power every year. Anyone who does their shopping in the supermarket can experience this every day. You get less and less for the same money.

The euro is being printed, so that there are more and more euros. And the more euros in circulation, the less the coin is worth. The above-ground gold quantity has been increasing (due to mining production) for hundreds of years by 2% per year. As a result, the growth in the gold supply is limited. As long as the money supply rises faster than the amount of gold (above ground), the gold pricerises.

In that sense, the reason for choosing gold is not very complicated. Gold retains purchasing power where the euro especially does not. Especially when the interest on the savings account is lower than inflation, a loss of purchasing power is the result. With an inflation rate of 5% and 2% interest on the savings account, this means a loss of purchasing power of 3% per year.

Gold has risen about 9% per year on average over the last 23 years. This year we stand at a profit of 5.7% in 8 months. Well on track to the 9% average per year.

If you would like more information about the options for investing in gold, we will be happy to assist you. We are easily accessible and take the time to inform you. Send an email to support@doijerkalff.nl and we will call you back when it suits you.