Gold prices have been tangled in so far this year. Since the beginning of 2021, spot gold has increased around 0.66%. It is clawing back some gains after a March fall that witnessed prices fell under $1,700 per ounce. It is currently trading at about $1,911 an ounce.
The central bank holds the financial system flooded with cash. Hence, inflation in the U.S. is still very much in the attention. Since last year, the Federal Reserve has held interest rates low. It got up Treasurys in a bid to spur the coronavirus-hit economy and keep financial markets lose.
Speaking to CNBC’s “Squawk Box Asia” on Monday, the resources analyst led to recent U.S. inflation data that displayed prices were increasing as the core personal consumption expenditure index for April came in faster-than-expected on Friday. Central bank officials examine the measure as the best measure of inflation.
According to Lennox higher inflation readings, should be a “boon” for gold, a physical asset.
Inflation’s coming back because we’ve witnessed such a significant surge in U.S. money supply, he revealed. Whenever we’ve seen that flood in the past, it’s been supplemented — probably five of six months later — by higher inflation.
Lennox implied that depending on one’s investment time horizon, and there are two ways to engage in the expected gold rally ahead.
At this stage, we’d recommend that if we do understand a solid swell in the gold price, then you could look for a gold ETF where you do get that one-on-one price movement — of course, minus any management fee, he stated.
That does give you great exposure.
Nevertheless, Lennox stated they should reconsider exposure to gold miners for those investing longer instead.
The miners can increase their production in the future, and they also pay dividends, so you get a tiny bit back, he replied.
Dollar Instability Ahead?
Meantime, the dollar might weaken and could be another possible tailwind for gold. The precious metal is a safe investment asset in times of market uncertainty.
Moreover, the economies of major currencies that trade versus the U.S. dollar are doing more reliable than the U.S., he spoke without embellishing.