After a 2013 that left owners of gold writhing in pain, 2014 brought some welcome respite. The last three months were not too fruitful for gold bugs, but alas the last couple weeks have pushed the precious metal higher.
Initially it was the disturbing news coming from Iraq that plowed traders into gold, but Wednesday’s comments from Fed Chief Janet Yellen caught gold sellers by surprise. Yellen’s suggestion that low rates would remain for quite a long time surprised some, and sent more traders back into the gold since the metal tends to weaken during times of higher rates (which many market pundits wrongly predicted would be the tone Yellen was going to take).
Even before Yellen’s comments, many advocates for gold were saying to own it before Thursday’s move (which sent gold to a three-week high). In the attached video, KKM Financial’s Jeff Kilburg says the reason to own gold is not because of higher rates, but because inflation will be coming.
“We saw that CPI number jump year or year about 2.1%, I think that was significant, but I don’t think the Fed really cares until we see wage inflation,” he says. “I think this is confusing folks on how to brace for this inflation.”
Kilburg argues what we could be seeing soon is actually hyperinflation, a result of the Fed pumping in an unprecedented $5 trillion in liquidity over the last few years. The liquidity “pendulum has swung too far” in Kilburg eyes.
The data doesn’t show an inflation spike just yet, but Kilburg says don’t tell that to everyday Americans who’ve seen prices rise for staple items. “I think every American would agree with me that we are seeing energy costs go up, we are seeing food costs go. Inflation is here, it really is, especially on Main Street.”
Kilburg argues the case to own gold is multifaceted, as it is a hedge against geopolitical destabilization (given what’s happening in Iraq and Ukraine), but more importantly, it’s a way to protect against the threat of hyperinflation.
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