Incoming Reserve Bank governor Michelle Bullock is expected to have a more dovish approach than outgoing governor Phillip Lowe. Lowe has been widely criticised for raising rates soon after telling Australians that was unlikely until at least 2024. Bullock, by contrast, is expected to favour lower rates.

But the RBA surprised the markets somewhat by holding the cash rate steady this week, not lowering it. This is an indication that they still see inflationary headwinds ahead.

Inflation is generally viewed as positive for gold and other real asset prices. Rising rates, by contrast, are seen by many as a negative for gold. But this view flies in the face of the last major stagflationary period the 1970’s, which saw both low growth with persistent inflation.

In that prior period interest rates did indeed climb dramatically from 5% to 19%, but gold performed handsomely. It rose from USD $55 per ounce to over USD $800 per ounce. While we think a rise of that magnitude is unlikely this time around, the same themes are likely to play out.