Gold Plummeted With Falling Inflation Pressure Except In Japan

Includes: GLD, SPY, VTI
by: Kirk Lindstrom

Today the Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released its latest readings for its proprietary monthly Future Inflation Gauges (NYSE:FIG) this morning, Friday July 5, 2012. (More about ECRI)

The value of the various FIGs lie in their ability to measure underlying inflationary pressures and thereby predict turning points in the various inflation cycles around the globe. ECRI released separate reports for the United States, Eurozone (Germany, France, Italy & Spain), the United Kingdom, Japan, Korea, Canada and Australia.

Seven of the eight regions covered show falling inflationary pressure with only Japan showing higher inflation pressure.

United States - Lower: "ECRI's U.S. Future Inflation Gauge (USFIG) fell again in June. The value of the USFIG lies in its ability to measure underlying inflationary pressures and thereby predict turning points in the U.S. inflation cycle."

Commenting on the USFIG report, Lakshman Achuthan, co-founder and Chief Operations Officer of ECRI, said, "With the USFIG falling further to a seven-month low, U.S. inflation pressures have clearly waned."

Here is a sample of the reports using the Eurozone:

Eurozone Inflation Pressure Stays Low

Two Years ago in "Global Inflation Pressure Rising: How to Profit" I recommended individual TIPS and Series I Bonds over gold as a "safe" way to profit from moderate to high inflation.

"Bottom line, gold and silver can continue to soar but they can also crash like they did after peaking after the Arab Oil Embargo of the 1970s. If you want a SAFE investment that will keep up with inflation, then individual TIPS and Series I Bonds are your tickets.

Inflation is clearly higher as this CPI table taken from the July 2013 issue of my investment letter shows.

Despite inflation in the last two years, the price of gold and its exchange traded fund, GLD, are much lower while TIPS and Series I Bonds have shown significant positive returns.

Gold Review:

Individual TIPS and Series I bonds have done very well while gold is down. The good news for gold investors is despite the cyclical bear market for gold, the lower dashed-green support line in my chart below shows gold remains in a secular bull market.

In addition I Bonds and TIPS for inflation protection, I have recommended SPY (an exchange traded fund for the S&P500 index) here in multiple articles.

In "ECRI Posts Second Week Of Negative WLI Growth" I wrote:

  1. "Despite a slowing economy, I like equities including SPY and the more diverse Total Stock Market Index exchange traded fund, VTI. Over the next 10 years, I expect the S&P500 will keep up with inflation and the dividend it pays should grow with or even exceed inflation."

Bottom Line: Gold is down significantly as global inflation pressure is low and falling.


Gold: I own a small amount of physical gold just for emergencies.

I-Bonds: I have a significant amount of Series I bonds with base rates as high as 3.0%. I also recommend them in both my newsletters for some time. For more information, see Current I Bond Rates and iBond Base Rate History.

TIPS: I also own individual TIPS in both my regular and ROTH IRAs. I also recommend them for my "explore portfolio" in "Kirk Lindstrom's Investment Letter."

SPY: I own and trade SPY around core positions in my personal portfolio and in "Kirk Lindstrom's Investment Letter."

Disclosure: I am long SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.