US Fed chair Jerome Powell finally admitted that inflationary pressures weren’t going to be as short-lived as perhaps expected.
Earlier this week Powell surprised markets by suggesting it would be appropriate to drop the phrase “inflation is transitory” from the Fed’s lexicon.
For gold bugs, the prospect of higher inflation is often viewed as a good thing. Gold is an ‘inflation hedge’; an investment that ostensibly protects the buyer from decreased purchasing power of a currency due to rising prices.
Which is happening right now, everywhere.
Goehring & Rozencwajg Associates managing partner Leigh Goehring
told ***** that we are “getting closer to the explosion of gold prices to the upside”.
“There are too many similarities between now and the late 1960s and early 1970s, and they cannot be ignored,” he says.
“Back then, inflation was going up about 5%-6% per year — the same as now. And then, in 1973, there was the black swan event — the oil embargo.”
Oil went from $US4 a barrel up to $US15 a barrel literally overnight.
This time there’s a difference, Goehring says.
“This time around the Fed will have to give up on raising rates because it will be too painful for everyone,” he says.
“Once the precious metal bottoms from the Fed’s tightening action, it will begin its massive bull market.”
‘Rapidly approaching an inflection point’In November, Goehring & Rozencwajg
wrote that multiple trends supported the view that we are rapidly approaching inflation’s inflection point.
“In 2019, M2 [money supply] was only growing at 4% per year; today it is growing at 27% per year — the fastest rate in history,” they say.
All this free cash means shortages are starting to develop, Goehring & Rozencwajg say, in everything from
timber,
semiconductors, restaurant workers and ketchup packets.
Meanwhile,
economically sensitive commodities such as copper have entered new bull markets while surging grain prices warn of significant food inflation ahead.
“Despite these trends, investors continue to pile into technology stocks, SPACs, cryptocurrencies and long-term bonds; each of which will perform terribly in an inflationary environment,” Goehring & Rozencwajg say.
“In stark contrast, inflation hedges like gold remain priced at record low levels relative to financial assets and are ignored by almost all investors.
“The countdown to inflation is ticking and we are getting closer and closer to an explosion in inflationary pressures,” Goehring & Rozencwajg says.
“All economic signs point in that direction, yet few investors are prepared to protect themselves, yet alone profit from an investment landscape that is about to suddenly and radically change.”
