Gold Prices Stagnant Despite Record Low

Gold prices have been stagnant in recent months, leaving many wondering what could drive them upwards. The World Gold Council says a possible second wave of inflation is not a guarantee for a major rally in gold.

At present, the price of gold is about 25% below its record high of $5,405 an ounce, reached on January 29. The current price stands at $4,027 an ounce after testing the $4,000 level several times this month.

The council notes that inflation alone may not lift gold prices, as investors tend to react more to interest rates and the US dollar's performance rather than just inflation levels.

A second wave of high inflation is still possible, but it would be unlike the pattern seen in the late 1970s due to differences in labour unions' influence, oil's role in the economy, and the Federal Reserve's mandate to control inflation.

The council also points out that companies are passing higher costs on to customers, while inflation expectations among consumers have adjusted upwards. Near-term disinflation remains possible due to a less robust US economy compared to post-pandemic times.