The number of people buying gold may be set to rise as a financial expert predicts core inflation rates to increase over the next 18 months.
Citi Analyst Tom Fitzpatrick said today’s inflation looks to be mirroring trends seen in the late 1950s when prices continued to soar well into the mid-1960s.
Mr Fitzpatrick told King World News that the economic situation was similar at that time due to “very easy monetary policy” and warned inflation increases could be on the horizon.
He argued that the average American is already feeling the pinch, with declining real income and rising rent, food, education, transport and health care costs.
“At this point, even though it’s not reflective in the core indices, out in the real world these price spikes are already taking place,” the analyst explained.
What does this mean for the price of gold?
According to Mr Fitzpatrick, all of these indicators could see more investors flocking to gold, as the precious metal has a “flight-to-safety aspect” to it, which is particularly true when people fear inflation rises.
With inflation taking off and estimates that the US Federal Reserve could miss its targets, these concerns are heightened.
“There is certainly an argument that inflation is going to head well above the 2 per cent inflation rate we hear talked about,” Mr Fitzpatrick stated.
“In that environment, there is no doubt that the Fed will be behind the curve. Hopefully this will not be to the same extent as we saw in the 1970s, but they will be behind the curve.”
Mr Fitzpatrick noted that when this occurs, it is difficult to see anything other than huge benefits for those who have invested in gold. Around 30-35 years ago, similar economic circumstances resulted in the price of gold multiplying eight-fold.
Between 1970 and 1974, the value of the yellow metal multiplied by six when sharp inflation hit the markets.
“So we’ve seen very sharp moves in gold when we have previously seen a major increase in the core inflation rate,” Mr Fitzpatrick continued.
“Even if we saw a move to just a 4 per cent inflation rate, with the Fed behind the curve that would be a catalyst for a much higher level in the price of gold.”
Could gold prices jump 90%?
When core inflation began moving towards 2.5 per cent in both 1998-2002 and 2003-2006, gold prices soared 50 and 90 per cent respectively.
With inflation again tipped to be entering a potential period of substantial increases, gold could be set to experience similar gains on the market.
The World Gold Council recently noted that investors are taking a ‘wait and see’ approach on the yellow metal, with many happy to be patient with prices before taking the plunge.
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