Here’s the Real Reason Gold Has Been Rising
Deflation, not inflation, is driving the price up.
Gold has a reputation as a good hedge against inflation, so if gold is rising, it must be that markets are sniffing out inflation, right? Crispin Odey, a European hedge fund manager, even argues that governments may ban private gold ownership if they lose control of inflation in the wake of the Covid-19 pandemic.
But that line of thinking simply doesn’t stand up. Inflation has been dropping as a result of the pandemic, not rising. Consumer prices fell 0.4% in March and 0.8% in April. The destruction in demand from high unemployment has more than offset the reduction in supply from shutdowns of factories, slaughterhouses, and the like. Sure, the Federal Reserve is offering lots of low-cost loans, but without demand from borrowers it’s about as effective as pushing on a string. So, no inflation from the Fed, either.