"Is there any scenario in which a rise in inflation could be bad or neutral for gold?"
Yes, when it is lead by interest rates sensitive instruments such as bonds, and the CPI data rates reflect a lower inflation status. This causes pressure on foreign markets. And either countries like Euro-land must keep interest rate pace, or watch the cash outflows occur. This is why the USD has risen in the preceeding month as bond yields rose. This takes away the support on the over valued gold markets, and when any little news article happens, causes the price of Gold to fall. It's only because of M2 rate decreases that the bonds are remaining high. Monetary policies act as a buffer by increasing liquidity, which as of late has dried up. This is Greenspans way of removing the excesses he applied in late August. Many have stated as of late on how strange it was that gold was going up, with the US dollar. But this is really not due to inflation. Gold has always moved best in deflationary times. Except people often confuse interest rates increases with that of inflation, because often the two move in step. But in higher growth times, where growth out paces inflation, gold actually falls, as currency strengthen. Long bonds are only reflecting the lower M2 rates, or Monetary inflation if you prefer. After a while these yileds will either lower or CPI inflation will pick up. If CPI moves, so will the DOW {down}.
Consider this: cost of production has an affect on gold. What are the costs? Fuel, wages, machines.. etc. Oil? |
