As the global economy continues to show signs of recovery from the pandemic-led recession, investor focus has shifted to inflation risk. Reflationary pressures emanating from rising growth and economic activity (both consumer and manufacturing) are a core source of these inflationary concerns. In response, many have turned to gold as a potential hedge against this form of inflation.

While gold has historically served as a refuge during periods of extreme price inflation and deflation, the risk of extreme levels of price inflation currently remains low. Instead, investors should concentrate on the risk of monetary-led inflation (originating from dovish policies and higher liquidity) leading to US dollar (USD) weakness — and the potential benefits gold could offer in that environment.

Quiet but real: Inflation through currency devaluation

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