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If you’re looking for re-inflation, look no further than gold

Not only has gold moved into positive year-over-year territory, but TD Securities analyst Chris Dutton thinks it may be leading the way for other commodities.

This is not the first time gold has been the leader amid a seasonal and technical rally in the commodity space.

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For yesteryear five years, it has usually occurred around this time – the very first quarter – but has often been consult quick reversal in Q2.

However, when the long-term record is an accurate guide, the current gold price recovery could prove to become more of a cyclical – and for that reason sustainable move – as opposed to what is happening in the recent past.

“From a macro/technical perspective, we feel that the recent recovery in gold might be signalling an inflection point and also the potential beginning of a late cycle re-inflation phase,” TD Securities analyst Chris Dutton told clients.

He noted that a key precondition for starting off re-inflation cycles of history, plus a shift in investor sentiment from disinflation toward rising inflation expectations, has been a collapse and bottoming in oil prices.

Dutton noticed that oil’s dramatic declines in 1981, 1992-1993, 1997-1998, 2002, 2006, 2008, and 2014-2015 were all disinflationary at first. However, when the year-over-year alternation in oil prices starts to rise (from the decline of fifty per cent more often than not), the analyst believes a disinflation low is made.

“Gold prices almost always move higher awaiting this quite simple re-inflationary math,” he said, adding that in periods of re-inflation, gold stocks usually outperform the valuable metal itself.

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