What exactly does this chart represent? Gold is a trading vehicle, just like any other. Unless there is compelling evidence to the contrary, e.g. retail discounting coming to an end, equity markets/energy prices/corporate spending all rebounding strongly etc - deflation is the name of the game for the foreseeable future. The only fundamental driver for gold at the moment is the need to park billions of institutional money somewhere... but I don't see this continuing much longer.
The chart shows the 10y 10y fwd breakeven inflation, which, arguably, is one of the best measures of inflation expectations (with some caveats, as I mentioned). What I am saying is that the mkt is now repricing the probability of high inflation some time down the road (>10y, but 5y 5y fwd looks similar) higher. So price action in gold makes sense from that standpoint (I bot some as a long-term hyperinflation scenario hedge)...
Looks like we'll have to agree to disagree on this one, and let time reveal which of us turned out to be right...
What's the source of this data, may I ask? Sure, 10 years down the road inflation will be much higher than it is now (and this is why these "expectation" charts are meaningless when viewed during a recession), but do you think it justifies the 35% rise in gold price in the last three months? PA in gold does make sense, but for different reasons - similar to those that made oil rise to $147 last year.
i presume source are TIPS (10y and 20y). they are proved to be a bad predictor of CPIx so i would take it with a grain of salt... gold is much better imho - at least for real basket of consumer prices. the problem with gold is that it is used as a proxy for other things too, e.g. store of value, fear factor and a commodity value to name the few....so you never know what is what.
The source of this data is the US trsy market, since it is based on a time series of daily closing yields/durations for TIPS and UST (specifically, Jan27 and Jan17 TIPS breakevens). That's why I said that the chart shows inflation expectations implied by the mkt. As to your other point, the chart, in rough terms, doesn't show future inflation as it relates to spot inflation, but rather the actual fwd expected inflation. So, in December 08, the mkt was pricing that for the period from 2017 to 2027 inflation was going to average arnd 1.5% yoy. Now we're expecting arnd 2.1% yoy for the same period. Again, this is all subject to the usual caveats (decomposition of inflation risk premia from inflation expectations; instrument-specific effects, etc), but it's the best gauge we got.
These are, in fact, TIPS, you're right. The point I am making has nothing to do with predicting CPI. That's a job for economists and it's VERY difficult to do, even in the best of times. The goal is to understand how the community today perceives the long-term risk of inflation in the future. All I am saying is that if you look at fwd TIPS breakevens, which, although not perfect, are one of the few mkt-based measures of inflation expectations, you will see that the move in the price of gold is consistent with the hypothesis that it's being used as a long-term inflation hedge. Specifically, as I mentioned, I am using gold for that purpose myself. As to your other point, I also find it hard to use gold as a measure of inflation, because of a) instrument-specific issues that I am not an expert on (ETFs, storage, etc); b) inability to decompose the long-term inflation component from the short-term flight-to-quality one.
They don't necessarily have to flood the world with new dollars, as the only solution. There's always the option of selling more debt (who says hope is priceless?). If there is a combination of both measures in place, then inflation effects of quantitative easing will be mitigated by the sustained demand for $ as a result of continued treasury purchases.
US household Savings by definition is going up. The USD will rise accordingly. Gold will fall once this "flight to safety" scare is over.