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‘Gold has mettle as indicator of inflation’

Gold is a better indicator of the direction of inflation than the oil price or consumer price index, says the World Gold Council.

The body also claims that gold is a better hedge against inflation than inflation-linked bonds and is an effective hedge against economic shocks, given that it has a finite supply.

Research commissioned by the World Gold Council and carried out by HC Wainwright & Co Economics says the CPI is too reactive and backward-looking to monitor inflation while the gold market is more efficient in pricing in inflation risk.

HC Wainwright & Co president and director of research David Ranson says his study found that gold prices are a very effective leading indicator.

Analysts monitoring the gold price would have noted the inflationary pressures on the US and other major markets a couple of years ago, he says.

Ranson says: “The implications of a change in the gold price are far-reaching. Gold serves as a dependable barometer of purchasing power and, therefore, of pressures on inflation and bond markets.

“The price of gold and other precious metals has been signalling a return to inflation for some time and if, as we expect, inflation continues, managers will be scrambling to find investment instrum- ents with which they can pro- tect their portfolios from its pernicious effects.”

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