Gold hasn’t been protecting investors from rising inflation. Why China and ETF investors are buying anyway. Every investor knows the drill: When markets buckle, buy gold.
But in September, that playbook has not worked out. The yellow metal has gotten hammered this month as oil prices have spiked and inflation fears have roared back, while technology stocks and even bitcoin — the very bets investors are supposed to flee in a panic — have ripped higher and helped underpin the broader stock market. The most active gold contract, for December delivery , has fallen 6.4% this month to trade at $4,200 an ounce on Wednesday morning — putting it on track to book its worst month since June, according to Dow Jones Market Data.
That’s in sharp contrast to the stock market, where the Nasdaq Composite had risen 2.5% and the S&P 500 was up 0.3% in September. Infrastructure investing: A hedge against inflation and geopolitics?Play video: Infrastructure investing: A hedge against inflation and geopolitics? Even bitcoin , the world’s No.1 cryptocurrency and a notoriously volatile asset, had broken above $86,000 and surged 7% in September toward its highest level for the year.
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To be sure, gold is a classic inflation hedge — a scarce physical asset whose dollar price tends to climb as currencies lose purchasing power due to rising price pressures. That makes it a natural refuge when oil prices are rising, inflation is proving sticky and geopolitical tensions are running high. But now, the yellow metal is caught in a tug-of-war.
Rising oil prices, persistent inflation and seemingly endless U.S.-Iran tensions would seem to support bullion, but climbing Treasury yields and a stronger U.S. dollar are pulling it the other way. That’s because gold pays no interest, so as yields rise, the opportunity cost of holding the metal increases. When investors can earn nearly 5% for holding a Treasury note for just two years , for example, holding a real asset that pays no yield becomes less attractive.
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