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If Inflation Doesn’t Rapidly Dissipate, Gold Prices Will Prove Undervalued

By Jesse FelderMarket OverviewJul 06, 2022 12:45PM ET
www.investing.com/analysis/if-inflation-doesnt-rapidly-dissipate-gold-prices-will-prove-undervalued-200626766
If Inflation Doesn’t Rapidly Dissipate, Gold Prices Will Prove Undervalued
By Jesse Felder   |  Jul 06, 2022 12:45PM ET
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Volatility in the markets this year has largely been driven by the rise in inflation.

So if rapidly rising price pressures dissipate, taking inflation back below 2% quickly, then perhaps the moves in markets this year will be seen in hindsight as “filled with sound and fury, signifying nothing,” to quote Shakespeare.

Certainly, this is what markets are still discounting even after their recent ructions. Equity prices remain extremely elevated while gold prices remain relatively depressed. Episodes of rising inflation typically see just the opposite.

Gold To Dow Jones Industrial Average Ratio/CPI YOY
Gold To Dow Jones Industrial Average Ratio/CPI YOY

Therefore, if inflation proves more durable than markets currently discount, the recent volatility may be merely a prelude to a more significant repricing across several asset classes.

In fact, the level of CPI today already suggests that gold, relative to equities, may be just about as undeservedly cheap as it was a half-century ago, the last time inflation really became a problem.

And if inflation remains elevated, gold prices could have a terrific amount of upside ahead, especially relative to stock prices.

If Inflation Doesn’t Rapidly Dissipate, Gold Prices Will Prove Undervalued
 

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If Inflation Doesn’t Rapidly Dissipate, Gold Prices Will Prove Undervalued

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Comments (2)
Muhammad Shakir
Muhammad Shakir Jul 07, 2022 2:56PM ET
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send me smol money
Subramanian Venkatram
longshot966 Jul 07, 2022 12:26AM ET
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agreed but market often respond to rose tinted central bank statements that reflect hope and less of reality.. let's be frank.most of the inflationary pressures come from the war and market disruptions.. interesting road ahead when rates add pressures to an already pressured market.. rates don't deliver world peace and a resumption of trade..and we pretend these nuggets of weak freight and reduced bottlenecks will deliver sporadic shifts that the markets celebrate like the end of inflation
 
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