Increasing purchasing power, primarily due to falling unemployment and fiscal stimulus, is creating inflationary pressures in the United States. This makes the backdrop favorable for gold because this precious metal tends to perform well in an inflationary environment, providing a hedge against economic uncertainty. Hence, we think investors seeking to capitalize on the yellow metal’s turnaround should consider betting on mining stocks Centamin (CELTF), DRDGOLD (DRD), and Jaguar Mining (OTC:JAGGF).These companies are well-positioned to deliver significant returns. Read on. Investors turned to safe haven gold last year to protect their wealth during the COVID-19-led economic slowdown. The precious metal came under relentless selling pressure after hitting all-time high in August 2020, however, due to investors’ optimism over a potentially robust global economic recovery spurred by the mass vaccination drive. Consequently, gold prices slid to $1,700 per ounce in March this year.
However, the yellow metal has rebounded sharply on worries surrounding rising inflation and is currently trading near $1,900. The government's rescue spending and an improving job market have been boosting purchasing power, which is driving inflation. In fact, consumer prices in the United States have recently increased the most since 2009. According to Statista, the annual rate of inflation this year is expected to be 2.26%. Furthermore, because the Fed currently views any rise in inflation as temporary, the central bank may not change its easy monetary stance anytime soon.
So, while the recovery by the economy so far has boosted investors’ risk appetite, uncertainties continue to loom over the pace of recovery. As a result, gold’s demand as a safe-haven asset is increasing. Also, with the printing of money picking up pace globally and the Fed expanding its balance sheet, the dollar could weaken further, pushing gold prices higher.