Goldex Heartbeats: Higher Inflation Is Becoming More Apparent

Goldex Team

Editorial content

Increasingly the higher inflation situation is becoming more apparent. Statistics, articles from across the world and from a variety of sources are beginning to point out what many have been saying for months. Higher inflation is coming. Prepare accordingly. Here is the Spectator from March 6th:

But even now, with a 2% inflation rate that is so beloved of central banks, the purchasing power of what somebody earns decreases significantly in the future.

This article, by John Mauldin called Inflation is Broken , is well worth a read. It explains how inflation is underestimated due to housing measures and what the current rate of inflation does to savings:

Central banks all over the world, including the Federal Reserve, have an aspirational goal of 2% inflation. If you are age 30–40, that means every dollar you save today will lose half its value by the time you need it for retirement. And that’s what passes for planning by a committee. They literally plan on destroying the value of your dollar. The only real debate is over how fast to destroy it.

What is amazing these days is how sanguine the market and commentators are about inflation. It used to be public enemy No. 1 for central bankers and economists. The journalist Sheila Bair @SheilaBair2013 posted this comic strip from the New York Fed from the early 2000s explaining the dangers of inflation in simple terms:

 

How times have changed. From the Pandemic lows of one year ago, look at the price increases in stocks and commodities (@RudyHavenstein):

And bonds are reacting:

And with the US Government finally passing its huge stimulus law in Congress more money direct to individuals is on the way. This is regardless of unemployment during the pandemic. Charlie Bilello shows what is being paid so far, and the effect on US debt (@CharlieBilello):

On the below table look how long it took to add USD1 Trillion of debt in the 1980s and 1990s. It was a fairly infrequent event, taking usually around 1,000 days at least:

A trillion dollars clearly isn’t what it used to be. That fact, and the ease that trillions have been added so quickly, and without real political debate are the emerging signs that any sort of discipline has gone out the window.

Now it takes just 100 days to add another trillion. Of course, this budget deficit, and all spending programmes need financing somehow, especially when one looks that what is spent every hour:

And how much the Federal Reserve’s balance sheet has “expanded”:

It’s no wonder then all sorts of new “assets” are seeing crazy valuations or that inflation metrics are moving higher:

Tin:

Or that we are seeing comments such as this more and more from bond legend Jeffrey Gundlach:

80% of the budget is borrowing, so why bother with taxes at all

Slowly but surely the idea of debt being a problem is being replaced. And this isn’t just in the US:

The ECB now has USD8.6 trillion of “assets” making it the largest central bank in the world. There is a certain craziness to asset markets now. Whether it’s Elon Musk mocking the SEC (again), talking Dogecoin (again), or digital art being sold for USD70 million dollars, things feel a bit “toppy” as some traders call it:

We talked with Beeple about how NFT mania led to his $69 million art sale

Yet for all the bubble talk the Nasdaq has not pushed on from its mid-February high:

Is the bubble slowly popping? It remains to be seen. But in tech stocks at least the animal spirits have subsided for now. What clearly is not in a bubble is the yellow metal.

Gold looks like it is beginning to stabilise. It continues to hold above the summer 2020 level which is important. All eyes for market participants and investors turn to Wednesday’s FOMC (Federal Reserve Open Market Committee) meeting. This could show that the Federal Reserve will finally indicate it could look to potentially raise interest rates in 2023.

Why this week’s Fed meeting could be ‘March madness’ for markets

And the resulting headlines are important:

*7 OF 18 FED OFFICIALS SEE AT LEAST ONE ’23 RATE HIKE

This is the most “hawkish” sign we have seen for a long time that interest rates will go up. But it really isn’t that strong a sign. But when one looks at the inflation forecasts from the FOMC there is no acknowledgement that core inflation looks to be getting out of control:

*FED FORECAST SHOWS 2.2% CORE INFLATION IN `21, 2% `22, 2.1% `23

But they do acknowledge it is moving:

*FED PROJECTS INFLATION AT 2.4% IN 2021, UP FROM EARLIER 1.8% ESTIMATE

Over the next few days, the market will digest what it really means. But the signs are clearer every week. Inflation is on the way, prepare accordingly.

Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.