Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / Gold In Your Portfolio During Falling Inflation 2026
Transcript
- Lucas: Gold is sitting at four thousand one hundred fifty-six dollars an ounce as of this afternoon, up three point six percent in the last five trading days. The mining stocks are up even more — GDX, the gold miners ETF, climbed seven point seven percent over the same stretch. Luna: That is a pretty sharp move, especially given that headline inflation is actually cooling. The June CPI came in at 332.6, down from 333.98. So the classic narrative — gold goes up when inflation goes up — feels like it's getting tested here. Lucas: Right. And that's exactly what I want to drill into today. The conventional wisdom says gold is an inflation hedge, but the data we've got right now makes that a more complicated story. Headline CPI is falling, core CPI is basically flat, and yet gold is ripping higher. Luna: So what's actually driving it? Because on paper, lower inflation should reduce the appeal of a non-yielding asset like gold. Lucas: Well, there are a couple of things. First, the 10-year breakeven inflation rate — which is the market's expectation for average inflation over the next decade — sits at 2.26 percent, up slightly from 2.25 the day before. That tells you the market still sees inflation staying above the Fed's 2 percent target. Luna: So even though the actual CPI number dropped, the expectation of future inflation hasn't really budged. That would support gold. Lucas: Exactly. And there's a second factor: the Fed funds rate is still at 3.63 percent. The Fed hasn't cut. Real rates — nominal rates minus expected inflation — remain positive but not aggressively high. That's a pretty supportive environment for gold, historically. Luna: Real rates are positive but not punitive. So gold isn't getting crushed by the opportunity cost of holding it versus yielding bonds. Lucas: Right. And then there's the geopolitical layer. You've got headlines about U.S.-Iran tensions escalating, and that kind of uncertainty tends to push money into safe havens. Gold is the classic safe haven. Luna: So it's not simply an inflation trade anymore. It's a real-rate trade plus a geopolitical hedge. Lucas: Exactly. And that changes how you should think about gold in a portfolio. If you bought gold in 2021 as a pure inflation hedge, you've done well. But if you're buying it today at four thousand plus, you're making a bet on something beyond just CPI readings. Luna: What about TIPS? They're often compared to gold as an inflation hedge. How do they look right now? Lucas: TIPS are yielding about two percent real right now, which is actually quite attractive. They offer direct inflation protection and they pay a coupon. The breakeven rate tells you the market expects 2.26 percent inflation — so TIPS are effectively giving you a 2 percent real return above that. Luna: That's a pretty decent real return. Gold doesn't give you any yield. So TIPS might be the better hedge for someone who wants income plus protection. Lucas: I think that's a fair point. Gold has no cash flow. You rely entirely on price appreciation. And when the price is already at an all-time high — we're at 4,156 — the risk of a pullback is real. Luna: But gold miners like those in GDX have rallied even more. Seven point seven percent in five days. That feels like a bet on further gold upside, not just a hedge. Lucas: That's true. Mining stocks are leveraged plays on the gold price. If gold goes up, their earnings tend to rise faster because their costs are relatively fixed. So the GDX move suggests speculators are pricing in more gold gains. Luna: Though if gold stalls, those stocks could fall harder. Higher beta in both directions. Lucas: Exactly. So the question for our listeners is: should you own gold right now? And I think the answer depends on your time horizon and what you're trying to protect against. Luna: If you're worried about a spike in inflation from here — maybe supply shocks from the geopolitical situation — then gold makes sense. If you think the Fed will eventually cut and real rates will go negative, gold also works. Lucas: But if you're expecting inflation to keep trending down toward 2 percent and the economy to stay stable, then gold's risk-reward is less compelling. You'd probably be better off in TIPS or even just a diversified bond portfolio. Luna: Speaking of practical decisions, if these kinds of conversations help you think about your own money differently, that's exactly why we do the show. And the way we keep it ad-free is through listener support — buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small gesture that makes a big difference for us. No pressure, but if you've gotten value from episodes like this, that's the place to chip in. Luna: Alright, back to gold. One thing I want to flag is that GLD — the big gold ETF — is up four point three percent in the same five days. That's a massive inflow indicator. When money pours into GLD, it's institutional demand. Lucas: That's a good point. GLD is the vehicle of choice for big asset allocators. So the ETF flow data suggests the rally isn't just retail speculation. Institutions are adding gold exposure. Luna: And silver has been even more explosive — up eight percent in five days, trading at 60.52. That's a bigger percentage move than gold. Lucas: Silver is more volatile, but it also has industrial demand. Solar panels, electronics, that kind of thing. So the silver rally might be reflecting both monetary demand and supply concerns. Luna: So the whole precious metals complex is moving. But for the average listener who just wants to protect purchasing power, the key takeaway might be: don't assume gold is always the answer. Lucas: Right. Think about what inflation scenario you're actually hedging against. If it's a slow grind of 2.5 to 3 percent inflation, TIPS or I bonds might serve you better. If it's a geopolitical shock that sends inflation back to 5 percent, then gold is your friend. Luna: And whatever you do, don't just buy gold because it's going up. That's performance chasing, not hedging. Lucas: Exactly. So the bottom line: gold has a place, but understand why you're buying it. And right now, with the CPI cooling but core sticky, the case for gold is more nuanced than it was two years ago. Luna: Especially with the breakeven at 2.26 — the market is already pricing in above-target inflation. So some of that expectation may already be in the gold price. Lucas: That's the million-dollar question. If inflation expectations stay anchored, gold could consolidate. If they rise again, we could see new highs. But either way, knowing what you own and why is the most important thing.