View from the Observation Deck
Today's blog post illustrates the wide disparities that often exist between the annual price performance of an ounce of gold bullion, silver, and the equity returns posted by mining companies. Since precious metals tend to be priced in U.S. dollars, we also included a column that tracks the relative strength of the U.S. dollar against a basket of other major currencies.
Takeaway: In some ways the data presented today defied our expectations. If the CPI is down 5.9 percentage points from its most-recent high, then why is it that gold is setting record highs, silver is rebounding, and the U.S. dollar is closing in on its 2023 calendar year high? From our perspective, there are several catalysts at play here. First, many investors view the U.S. dollar, gold, silver, and other precious metals as safe havens during times of turmoil. The wars between Russia/Ukraine and Hamas/Israel, as well as terrorist attacks in the Red Sea pose geopolitical risks that may be leading investors to seek refuge in these assets. Additionally, despite recent disinflation, the CPI remains well-above the Federal Reserve’s (“Fed”) target rate of 2.0%, even increasing from 3.1% in January 2024 to 3.2% in February. Other inflation metrics reveal a similar trend. The Fed’s “Core” (excludes food and energy) and “Supercore” (services only (no goods), excluding food, energy, and housing) inflation metrics rose by 2.8% and 3.3% on a y-o-y basis in February 2024, according to Brian Wesbury, Chief Economist at First Trust Portfolios L.P. Should geopolitical risk and inflation remain elevated or worsen, we expect higher valuations will occur within these safe haven assets.
The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. There can be no assurance that any of the projections cited will occur. The Philadelphia Stock Exchange Gold & Silver Index is a capitalization-weighted index comprised of the leading companies involved in the mining of gold and silver. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
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