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How Do Gold, Inflation and Public Debt Correlate ?
Sennna88 Posted 9 July in #Trader Contest #Inflation #Jforex #Gold #XAU/USD #Debt #Deflation #Brexit19/47
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Since the brexit sparked another round of gold buying, I was prompted to read and analyze correlation between the gold, inflation and public debt. As from the 2000s, the Gold prices have participated in a bull run. As a key reason, the "easy money" policies of majority of key world's central banks are to blame. So, why is the gold traditional hedge against inflation ? I have been hearing this line on the CNBC and Bloomberg for years and years, especially since we are currently in the phase of deflation.
So what are the conditions that represent inflation? That list include rising property prices, a rising stock market, and increasing asset values. But also the debt burden, representing debt with relation to income, is increasing.
Inflation v Debt
High inflation usually travels hand in hand with higher debt burdens. What does this mean ? Let me try to explain this. Imagine a situation where the government borrows $10 billion today from the market and that inflation is 5%, and the government bonds yields 10%. After a year, the government owes the same $10 bn that they borrowed. Add to that 10% interest and a total is $11 bn. Since the bond yield (10%) is above the inflation rate, th…
So what are the conditions that represent inflation? That list include rising property prices, a rising stock market, and increasing asset values. But also the debt burden, representing debt with relation to income, is increasing.
Inflation v Debt
High inflation usually travels hand in hand with higher debt burdens. What does this mean ? Let me try to explain this. Imagine a situation where the government borrows $10 billion today from the market and that inflation is 5%, and the government bonds yields 10%. After a year, the government owes the same $10 bn that they borrowed. Add to that 10% interest and a total is $11 bn. Since the bond yield (10%) is above the inflation rate, th…
