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Is Gold Still a Useful Hedge Against Inflation?

Sep 26, 2018

  • Gold is currently trading at USD$1,194.63/ounce, near its one-year low of USD$1,175.29 that it touched on August 6th, 2018.  
  • Gold has traditionally served as a hedge against inflation and a weakening dollar eroding the value of stocks and bonds in a portfolio, but investors are beginning to question if this is still true. 
  • The US Federal Reserve has raised interest rates twice in 2018 with at least one more hike expected in 2018. As interest rates rise, inflation in the US Dollar could slow down causing increased purchasing power. 
  • Gold’s poor performance in 2018 (YTD Return: -8.76%) can be attributed to the Fed’s two rate hikes in 2018.  
  • The Fed will announce its rate hike decision today at 2:00 PM. If the Fed decides to raise rates, we may see Gold's price dip further as it would signal an attempt at slowing inflation. If the Fed decides to hold rates, Gold's price may increase due to steady inflation.

Source: Capital IQ