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What will happen to the price of gold if inflation hits 2%?
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With rampant inflation over the past couple of years, the Federal Reserve quickly raised interest rates and has held them steady for the past year. Meanwhile, gold prices have been strong recently, with the price of gold per ounce hitting a record of over $2,400 in May. Although gold prices have come down slightly since then, they’re still up over 20% in the past year. Meanwhile, inflation has been showing signs of moderating recently too, although it could still be a while until it reaches the Fed’s 2% target.
If that happens, what could it mean for the price of gold? In some ways, high inflation could help the price of gold, as the precious metal is often purchased to try to hedge against inflation.
See how much a gold investment could cost you here now.
What will happen to the price of gold if inflation hits 2%?
Inflation is only one of multiple factors that can (and have) shaped the price of gold. So, even if it falls, gold could still rise in value for other reasons.
At the same time, high interest rates that are used to try to tame inflation can temper the price of gold, as high interest rates give investors an attractive option for essentially risk-free returns, like by buying Treasuries or even keeping money in a high-yield savings account.
So, some think that gold prices could fall as inflation drops to 2%.
“If and when that occurs, that could potentially deter some demand in gold and might lower the price,” says Alex Ebkarian, COO and co-founder of Allegiance Gold, a gold investing company.
“However, it’s a mistake to just look at the Fed’s reported inflation because it only measures year over year. Looking at the last three-year cumulative compound impact of inflation continues to be evident at the grocery stores and reflective on the price increase of gold,” he adds.
So, in that sense, with gold often being seen as a store of value, gold prices could potentially remain strong even if inflation hits 2%, at least in the beginning of that low inflation period.
Learn more about investing in gold during today’s inflationary cycle now.
Other considerations
Although there’s a case to be made in both directions in terms of how lower inflation could affect the price of gold, many experts see other factors being bigger drivers.
“The price of gold does not follow the inflation rate closely over the short to medium term. Thus, even if the Fed brings inflation down to 2%, there is no way of determining the behavior of the price of gold,” says Roger D. Silk, Ph.D., founder and CEO at Sterling Foundation Management, a wealth management company.
Instead, the price of gold might be influenced by broader economic and geopolitical factors, beyond just inflation.
Some investors, for example, turn to gold as a counter to the dollar, which could potentially weaken due to large government deficits that have been running since fiscal year 2002 across presidential administrations from both parties.
“Considering the current debt level and overall cost of interest expense and on-going de-dollarization movement, and the volatility nature of the market, coupled with some early signs of weaknesses in banks lead by the commercial real estate sector, I expect the reported taming of inflation would have a neutral impact on gold,” says Ebkarian.
Meanwhile, “other forces such as gold’s no-default risk, historical positioning, liquid nature and performance during times of crisis attributes are attracting new strategic investors that are more interested in ownership rather than exposure,” he adds.
The bottom line
At first glance, inflation might seem to move the price of gold, but many other factors are also involved. Thus, if and when the US reaches the Fed’s 2% target, that does not necessarily mean that gold prices will move up or down, as other factors such as government deficits and political instability around the world could influence gold investors who are looking to diversify.
NEW YORK — The Teamsters union is launching a strike against Amazon at numerous locations across the country, including in Maspeth, Queens.
The Teamsters are calling it the largest strike against Amazon in United States history, and it’s set to begin at 6 a.m. Thursday. In addition to New York City, workers will be joining picket lines in Atlanta, Southern California, San Francisco and Illinois.
In a video announcement released Wednesday night, workers voiced their frustrations.
“Us being strike ready means we’re fed up, and Amazon is clearly ignoring us and we want to be heard,” one worker says in the video.
“It’s really exciting. We’re taking steps for ourselves to win better conditions, better benefits, better wages,” another worker in the video says.
The union says it represents about 10,000 Amazon employees and that Amazon ignored a deadline to come to the table and negotiate. The $2 trillion company doesn’t pay employees enough to make ends meet, the union asserts.
At the height of the holiday season, many are wondering what this means for packages currently in transit.
Teamsters President Sean O’Brien said, “If your package is delayed during the holidays, you can blame Amazon’s insatiable greed.”
Amazon says Teamsters are misleading the public
An Amazon spokesperson says the Teamsters are misleading the public and do not represent any Amazon employees, despite any claims.
“The truth is that the Teamsters have actively threatened, intimidated, and attempted to coerce Amazon employees and third-party drivers to join them, which is illegal and is the subject of multiple pending unfair labor practice charges against the union,” the spokesperson said in a statement.
An Amazon representative says the company doesn’t expect operations to be impacted.
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Wisconsin school shooter was in contact with California man plotting his own attack, court documents say
The shooter who killed a student and teacher at a religious school in Wisconsin brought two guns to the school and was in contact with a man in California whom authorities say was planning to attack a government building, according to authorities and court documents that became public Wednesday.
Police were still investigating why the 15-year-old student at Abundant Life Christian School in Madison shot and killed a fellow student and teacher on Monday before shooting herself, Madison Police Chief Shon Barnes told the Associated Press Wednesday. Two other students who were shot remained in critical condition on Wednesday.
A Southern California judge issued a restraining order Tuesday under California’s gun red flag law against a 20-year-old Carlsbad man. The order requires the man to turn his guns and ammunition into police within 48 hours unless an officer asks for them sooner because he poses an immediate danger to himself and others.
Carlsbad is located just north of San Diego.
According to the order, the man told FBI agents that he had been messaging Natalie Rupnow, the Wisconsin shooter, about attacking a government building with a gun and explosives. The order doesn’t say what building he had targeted or when he planned to launch his attack. It also doesn’t detail his interactions with Rupnow except to state that the man was plotting a mass shooting with her.
CBS’ San Diego affiliate KFMB-TV reported that law enforcement searched the man’s home Tuesday night after the order was signed by the judge.
Police, with the assistance of the FBI, were scouring online records and other resources and speaking with the shooter’s parents and classmates in an attempt to determine a motive for the shooting, Barnes told the AP.
Police don’t know if anyone was targeted in the attack or if the attack had been planned in advance, the chief said. Police said the shooting occurred in a classroom where a study hall was taking place involving students from several grades.
“I do not know if if she planned it that day or if she planned it a week prior,” Barnes said. “To me, bringing a gun to school to hurt people is planning. And so we don’t know what the premeditation is.”
On a Madison city website providing details about the shooting, police disclosed Wednesday that two guns were found at the school, but only one was used in the shooting. A law enforcement source previously told CBS News the weapon used appears to have been a 9 mm pistol.
Barnes told the AP that he did not know how the suspected shooter obtained the guns and he declined to say who purchased them, citing the ongoing investigation.
No decisions have been made about whether Rupnow’s parents might be charged in relation to the shooting, but they have been cooperating, Barnes told the AP.
Abundant Life is a nondenominational Christian school that offers prekindergarten classes through high school. About 420 students attend the institution.
The Dan County Medical Examiner’s Office identified the two people killed Wednesday as 42-year-old Erin West and 14-year-old Rubi Vergara.
An online obituary on a local funeral site stated Vergara was a freshman who leaves behind her parents, one brother, and a large extended family. It described her as “an avid reader” who “loved art, singing and playing keyboard in the family worship band.”
West’s exact position with the school was unclear.