Does inflation help or hurt gold?
Gold is called an inflation hedge, yet hot inflation numbers often push it down.
Many people are surprised to see gold fall on a day when US inflation comes in high. Gold is meant to protect you from rising prices, so why does this happen?
Short term against long term
Over many years, gold has tended to hold its buying power as money loses value. That is the long-term story. Over a single day, traders care about something else: what the Fed will do next.
A hot inflation number makes higher interest rates more likely. Higher rates make gold less attractive, because it pays nothing. So the same number can be good for gold over ten years and bad for it over ten minutes.
The textbook reading
- Inflation above forecast: usually bad for gold on the day.
- Inflation below forecast: usually good for gold on the day.
CPI, PCE and "core"
CPI measures prices paid by households. PCE is a similar measure and the one the Fed prefers. "Core" removes food and energy, which jump around, so it gives a steadier picture. Traders often react more to core than to the main figure.