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Gold touches $1,900 on fastest US inflation since 1992

Over the past three months gold is now up by 10% as inflation fears mount

The price of gold soared yesterday following three consecutive days of losses as America revealed its inflation rate rose during May at the fastest pace in nearly 13 years.

Compared to the same month a year ago, consumer prices increased by 5% in May, according to the Bureau of Labor Statistics. 

It is the most significant increase since August 2008, when prices rose by 5.4%, and is 0.8% higher than April’s price rise.

While rising prices are not having a negative impact on equities at the moment, gold is starting to enjoy a decent run. The precious metal price is back above $1,900 per ounce and if it can maintain its recent momentum, traders may start to eye last year’s record highs.

Over the past three months gold is now up by 10%.

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Along with the inflation figures coming out of the US, wage data is showing “the biggest decline in real average earnings since ’08,” according to Bloomberg columnist John Authers.

“Gold thrived during the 1970s, when inflation was rampant (although it could be argued that stagflation was the problem then), and then fell right out of favour in the early 1980s after the Paul Volcker-led Federal Reserve clubbed it into submission with brutal interest rate increases,” says Russ Mould, investment director at AJ Bell,

“The tide turned again after 2000, since when the precious metal has outperformed even the S&P 500, as gathering Government budget deficits and then record-low interest rates and Quantitative Easing have persuaded some investors to abandon ‘paper’ money and ‘fiat’ currencies in favour of ‘real’ assets.”

“A vindication of central bankers’ view that the current inflationary spike is transitory, or an unexpected tightening of monetary policy, or a new round of tax-rises and hair-shirt fiscal policy could all stop gold in its tracks, and by implication make gold mining stocks less appealing,” Mould said.

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