It seems like only yesterday that surging inflation was the biggest issue dominating financial news headlines. Now? Inflation concerns barely make a peep. Declining numbers from certain inflation gauges have some analysts convinced that the latest war against inflation has been won. But not everyone is convinced, and there are many reasons for us to remain cautious.
The embers of inflation are still burning.
The Consumer Price Index, or CPI, measures the rise and fall of prices for consumer goods. After a few months of falling readings, the CPI has gradually begun to burn brighter again. The September 2024 CPI readings, released on October 10, found that annual inflation had grown 2.4%, which was above expectations. Core CPI, or CPI without the more volatile costs of food and energy, increased 0.3% for a second straight month, indicating prices may be on the rise yet again.
Olu Sonola, head of U.S. economic research at Fitch Ratings, cautioned that “inflation is dying, but not dead” when speaking to Bloomberg. Just like the hot embers hiding under a campfire that you thought had been put out, these new readings could start a new blaze if the winds of inflation continue to pick up.
There are also reasons to remain optimistic about inflation.
Most members of the Federal Reserve’s board of governors are quite optimistic about the direction inflation is headed. In a CNBC interview on October 10, 2024, Chicago Fed President Austan Goolsbee said, “The overall trend over 12, 18 months is clearly that inflation has come down a lot, and the job market has cooled to a level which is around where we think full employment is.”
I’ve never been a pessimist. Instead, I believe in being prepared for what could happen, good or bad. And in both situations—inflation reigniting or finally dropping to the Fed’s goal rate of 2%—the right action for me is the same.
No matter what happens, gold prices may be set to benefit.
If inflation rises again, gold’s longstanding use as a hedge against the falling power of the dollar may prove critical for many portfolios. A falling dollar would almost certainly make the precious metal more expensive, helping those who own gold preserve their wealth over the long term.
On the other hand, if inflation keeps on pace and continues falling, that would create a strong incentive for the Federal Reserve to cut interest rates. In this situation, gold could once again prove that it’s more than a “bad news” asset. As we’ve seen this past year, falling interest rates and predictions of falling interest rates have been major boosters for gold prices, and more rate cuts could push the precious metal even higher.
Regardless of what happens, gold is positioned to benefit—one more reason why now may be the perfect time to add physical gold to your portfolio.
