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The Market Gage – Crude Lower This Morning & Gold as a Deflation Hedge

January 12, 2015

“The Market Gage” features insights into the precious metals market from Roy Friedman. Roy has over 30 years of in-depth experience in all facets of precious metals.

Following Friday’s strong close, our market resumed trading yesterday with a probe higher, but volume was light with the highs of $1,231.30 gold and $16.69 silver being short lived. In early U.S. trading, all four precious metals are within a spread of where they were trading when electronic trading closed Friday afternoon. This morning finds U.S. equities and crude oil sharply lower and, if the recent pattern continues, this should be a positive for gold and its siblings today.

With the collapse of crude oil and a stock market that is on very shaky legs, there has been talk of the U.S. and perhaps global economies entering a period of deflation, which would be highlighted by a decline in the price of goods and services while wages are also declining. Friday’s labor report showed that hourly wages for December declined by 0.20 percent which was the largest decline since 2006. While gold has historically been thought of as a hedge against inflation, I would suggest we are seeing the early signs of gold’s value in a deflationary scenario as well. It is also worth noting that gold has rallied sharply recently when calculated using a foreign currency, as the strength of the USD has indeed benefited many market participants.

Source: Dillon Gage