Gold is approaching the $2,000 per ounce mark again with a weekly gain of 1.48% or $28.90. With that, gold closed at $1,977.10 per ounce. If one widens one’s gaze a bit, one can see that gold is up 9.56% for the year, while the S&P 500 is down 7.84% for the year, the DOW is down 5.19%, and the NASDAQ is down 14.66%. In other words, the start of this year has not been a bad one for gold investors.
The data published this week have certainly contributed to the gold price has again targeted the $2,000 mark, even if official data are always to be taken with caution. Nevertheless, investors and speculators should not ignore the data.
Three takeaways from this week
Crude oil prices have remained above the $100 mark despite news of record strategic reserve releases by IEA members. Brent futures recorded a gain of 13.32% this week, closing at $111.60 per barrel. WTI crude closed up 12.99% at $106.54 per barrel. Meanwhile, the EU is considering further sanctions against Russia, this time seeking a ban on Russian crude oil. Sanctions always have two sides: the side imposing them and the side they are intended to hit. The EU in particular should be careful in its sanctions against Russian products, not least because one is highly dependent and alternatives will be expensive. Ultimately, it is the citizens who will have to pay for the increased prices and the economy that will be hit hard. Those who decide the fate of all will, as always, be the last to understand what is happening. Here, EU politicians should think carefully about the direction in which the EU’s journey should go.
U.S. inflation data also showed a further increase for the month of March. The Department of Labor had published the official Consumer Price Index (CPI) data at the beginning of the week, which showed a year-on-year increase of 8.5%. As mentioned earlier, official data should always be taken with a grain of salt. Upon closer inspection, consumer price increases affect everyone differently depending on their situation and where they live. In many places, such as California and Texas, rents have increased by far more than 5%, or more precisely by a factor of ten. Food and gasoline prices are not the same everywhere, either.
Producer prices in the U.S., as measured by the Producer Price Index (PPI), were probably the biggest shocker this week. According to the Labor Department, they continued to rise in March, increasing by 11.2%. Rising producer prices over an extended period of time are not a good sign for consumers. Companies that initially believed official statements that inflation was only transitory are now likely to have to raise product prices. A popular trick that is used time and again is what is known as shrinkflation. In shrinkflation, prices are not increased, but portion sizes are reduced. The next time you shop at the supermarket, you might be more conscious of this. If shrinkage is included, one can of course speak of a distortion of the official consumer price data.
The current environment is still highly inflationary. In the near future, the EU will again put more currency units in its hands to strengthen the defense sector. This will further intensify the inflationary environment. In addition, the sanctions against Russia will only take full effect in the near future. Investors and speculators must keep a cool head even in rough times and make investment decisions prudently to reduce downside risks if necessary.