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Gold prices rise with inflation expectations

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Michaela Rehle / Reuters

(Read caption) A man holds a 100 gram gold bar from Germany's first gold-plated ATM, in a bank in Munich on Sept. 30. The machine, which features cutting-edge technology, dispenses 1g, 5g, 10g, 100g and 250g gold bars and also dispenses gold coins bearing designs such as Krugerrand, Maple Leaf and Kangaroo, which are sold in gift boxes at real-time prices. If inflationary fears prove true, Americans might start demanding gold-issuing ATMs, too.

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Today, the yield spread between regular and inflation-protected U.S. treasuries rose above 200 basis points for the first time since the before the Lehman Brothers collapse in 2008. The regular yield is as of this writing (as usual, when you read this, these numbers have probably changed with a few basis points up or down) 2.46% while the inflation-protected yield is 0.43%, implying an expected inflation of more than 2% per year during the coming decade.

By contrast, on September 1, the regular yield was 2.58% while the inflation-protected yield was 1.02%, implying an expected inflation of just 1.56% per year.
Not coincidentally, gold rose to a new all time high in U.S. dollar terms today.

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If, as many suggests, the Fed is actively trying to increase inflationary expectations, then it certainly looks as if they are succeeding.

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