Inflation Hasn't Been This High Since 2023. Could Gold Be Due to Rise Higher This Year?

The price of gold has been falling this year, and as of Thursday, it was looking in danger of falling below $4,000. That's a steep decline from the heights of more than $5,000 it reached earlier in the year. Investors have been pivoting away from gold, even amid the ongoing war in Iran and economic uncertainty.

The SPDR Gold Shares (NYSEMKT: GLD) is an exchange-traded fund (ETF) that tracks the price of gold, and its 12-month gains now sit at just 22%, looking relatively modest compared with earlier in the year when all the hype was around precious metals. The ETF is now down 27% from its highs.

Given the recent inflation numbers, however, could it be due for a rally?

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Could inflation lead to a higher price of gold?

According to the latest numbers from the Bureau of Labor Statistics, the annual inflation rate hit 4.2% last month, the highest level since 2023. Back then, however, inflation was coming down. This time around, it's on the rise as the war in Iran has pushed oil prices higher, in turn putting upward pressure on the prices of many goods.

Gold has traditionally been seen as a safe-haven investment, something investors turn to in times of instability. And so if investors worry about the broader stock market and the direction of the economy, the price of gold could rise again. What complicates the situation, however, is what happens with interest rates. If they end up rising to curb inflation, investors may look for high-yielding assets instead of gold. In 2022, as the Fed hiked interest rates, the price of gold declined. Instead, it has been the past couple of years that have seen it rise fast, perhaps due to concerns over the economy and trade policies.

Why I believe gold will bounce back this year

Rising interest rates could put downward pressure on gold, but I don't expect significant increases like what happened in 2022. Inflation was much more problematic back then, and the current issues may subside if the war in Iran ends. That could, of course, take time, but I believe the U.S. president will be motivated to keep prices down and prevent inflation from getting out of control, as it did a few years ago.

Meanwhile, investors may be looking for safe-haven investments amid continually rising stock prices, potentially leaving them at risk of a steep correction in the future. As a result, gold may be due for a comeback this year. That's why I think buying the SPDR Gold Shares ETF, whose value has been dropping lately, could be a good move right now.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.