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ABC Bullion

Did RBA contribute to current inflation?

22 July 2022

In this week's market report:
  • Spot gold price makes a valiant attempt at recovery overnight
  • Silver and platinum continue to drop in price 
  • RBA’s pandemic policy and its tie to rising inflation 
  • Turbulence persists on the housing market 
  • The Consumer Price Index 

Dear Investor,

US Dollar Gold Price [XAUUSD]

Source: Trading View
(Click to enlarge)
Gold hits 11-month low: After weeks of a steady downward trend, gold has finished the week strong. Despite spot gold’s intra-week price dropping as low as $1680.88 USD, it has finished 0.37% up for the week, sitting at approximately $1720.00USD.

Silver down:  Continuing its trend of decline, silver is sitting at around $18.80 USD as of this morning, travelling up by 2.19%.

Platinum down: Platinum is following suit with the other precious metals’ falling prices, bringing itself to $876.5 USD as of this morning, having gone up by 3.48%

Palladium is up: Following other precious metals falling of late, palladium has seen a price decrease of 0.89% to 1895.5 USD as of this morning

Bitcoin rallies: Bitcoin has increased to US$22,000, its highest level in a month

ECB increases interest rates: The European Central Bank has announced the end of its negative interest rates in an attempt to combat inflation, increasing the rate by 0.05 points to 0.0%

RBA’s pandemic policy and its effect on inflation 

RBA Governor, Phillip Lowe, gave his address to the Australian Strategic Business Forum on the 20th of July with the primary focus being on inflation and RBA’s potential contribution to the consistently rising inflation rates. Lowe’s address stated the March quarter’s CPI inflation rate of 5.1 per cent for Australia, putting it at a 30-year high. With the CPI rate for the June quarter being released next week, it is anticipated that it will step up.  
In Lowe’s own words,  
“The policy challenge for the RBA is to return inflation to the 2–3 per cent target range while, at the same time, keeping the economy on an even keel. We don't need to return inflation to target immediately, as we have long had, for good reasons, a flexible medium-term inflation target. But we do need to chart a credible path back to 2–3 per cent. We are seeking to do this in a way in which the economy continues to grow and unemployment remains low.” 
Lowe cites a three-factor imperative that catalysed RBA’s recent policy, but primarily discussed RBA and central bank approaches to pandemic policy: 
“[In response to the pandemic] the RBA had a strong insurance mindset. Many other central banks and governments had a similar mindset… we wanted to do what we could to provide insurance for Australians against the potentially catastrophic economic consequences of the pandemic. With the benefit of hindsight, it could be argued that we took out too much insurance. But that is the nature of insurance. If the event you were insuring against occurs, you are very glad you were fully insured.” 
It is widely hypothesised that RBA’s heavy-handed ‘safety-net’ policies have contributed to Australia’s rising inflation. 
Read or listen to the full address here

Turbulence on the Housing Market

If bond markets are correct, Australia's $10 trillion residential real estate sector will have to endure the biggest interest-rate increases since 1989.
The Reserve Bank started its first tightening cycle in 11 and a half years in recent weeks, causing consumers with some of the largest debt loads in the world to lose confidence.
US inflation figures this week may stiffen the resolve of Fed policymakers to proceed with another big increase in interest rates later this month. Economists estimate the gauge climbed 8.8% in June from a year earlier to a fresh four-decade high. 
According to economists, the indicator reached a brand-new four-decade high in June from a year earlier, up 8.8 per cent.

The US Consumer Price Index

Over the past month, we saw the largest increase in US annual consumer prices in over four decades, rising 9.1%, forcing Americans to dig deeper to pay for gas, food, healthcare, and rent.  
Due to this, investors who became concerned about the possibility of a worldwide economic slowdown have flocked to the US dollar, which has increased by more than 2% this month. 

Gold maintains its position as a safe haven for wealth in times of concern and with new quarterly CPI data being released next week, investors and homeowners are rushing to add gold and precious metals to their portfolios as a hedge against rising inflation and increasing interest rates on the housing market.  

Inside our office this week...

With many investors increasing their gold positions following the consistent low gold spot price while considering rising inflation, our ABC Bullion 50g Gold Cast Bar has been very popular this week.  

Warm regards,
The ABC Bullion Team