Gold continued to consolidate around $1,950.00 per ounce last week, closing at $1,934.30 per ounce on Friday. This extended consolidation pattern provides a buying opportunity in the current gold bull market.

After consideration of the Federal Reserve’s change of policy last week to keep interest rates low even when inflation exceeds 2%, it is projected that increased inflation should be highly favorable for gold (see the following chart of gold prices’ response to high and low inflationary periods).

As evidenced by a recent Forbes article, “According to the World Gold Council (WGC), in years when the rate of annual inflation was greater than 3 percent, the price of gold increased 15 percent on average in nominal terms. That’s 10 percentage points higher than the increase that gold prices saw on average in years when inflation was 3 percent or lower.”

For more information on how gold performs in periods of high inflation, read Flexible Plan Investments’ white paper “The Role of Gold in Investment Portfolios,” which can be found here (for financial professionals only).

Rick Andrews is President of Avant Capital Management