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Elevated inflation readings and stock market turmoil continue to inflict pain on investors. Some are hoping for a quick turnaround. Others are just looking for a place to hide.
Unfortunately, there have been virtually no safe havens from the broad-based carnage outside of the energy sector and gold.
Gold has been one of the best performing assets this year by virtue of holding up better than stocks, bonds, and cryptos. But the yellow metal came under some heavy selling pressure in futures markets this week.
Metals markets seem to be trading more in line with economic slowdown fears and margin calls on Wall Street than with inflation. That will likely change when the recent spate of panic selling subsidies.
But volatility is sure to persist. In a stagflationary environment, markets can plunge when stagnation fears predominate and just as dramatically snap back due to inflation pressures.
Gasoline prices hit another new high this week while food shortage fears continue to drive higher grocery costs.
Wednesday’s Consumer Price Index report showed the rate of cost increases falling slightly in April from the previous month’s reading. But the CPI still came in at a higher than expected 8.3%.
A CBS News report noted that supply issues will continue to persist even as Federal Reserve rate hikes force consumers and businesses to cut back on spending.
CBS News Anchor: The pace of inflation slightly dropped for the first time in months, the Labor Department says the Consumer Price Index rose 8.3% in April from a year ago, that is actually down 0.2% from March.
CBS News Reporter: But the President blamed the war in Ukraine for tightening grain supplies, driving up global food prices.
President Joe Biden: Putin's war has cut off critical sources of food.
CBS News Reporter: In the grocery store prices for meats, poultry, fish, and eggs are up more than 14% from a year ago. Citrus fruit, almost 19%.
Market Commentator: A lot of this inflation that we're experiencing is rooted on the supply side, rather than the demand side. The Federal Reserve raising interest rates to slow the economy, that'll address the demand side, but it won't fix the supply chain, it won't broker peace in Eastern Europe and it won't open the ports in China.
CBS News Reporter: And until we see some movement on those fronts, the high prices will likely continue. Many economists are now predicting that this high inflation will be with us into next year.
Rising gasoline prices don’t hit the typical family’s budget as hard as higher housing and healthcare costs do. But high gas prices are a huge political liability for the party in power. Joe Biden and the Democrats are scrambling to deflect blame and offer up price relief gimmicks to voters.
The political posturing likely won’t work. Even with the release of strategic reserves, oil will remain under-supplied for months to come. And the Biden administration’s cancellation of new oil and gas drilling leases will suppress domestic output for years to come.
Perhaps the administration sees demand reduction as some sort of solution. Locking down the country again because of a new virus variant would do the trick. It’s also possible that Fed rate hikes will drive the economy into a deep recession that causes demand to plummet.
But it’s hard to imagine either of those scenarios boosting the fortunes of Democrats this fall.
Current polling suggests the political landscape could shift dramatically in favor of Republicans after November’s mid-term elections. That has huge implications for investors in general and possibly for precious metals holders in particular.
On Tuesday, a Republican primary battle in West Virginia pitted two incumbents fighting over a newly redrawn Congressional district. One candidate had the backing of establishment forces, including the state’s Democrat Senator Joe Manchin. The other had the support of Donald Trump and grassroots activists, including sound money proponents.
In the end, West Virginian Republicans delivered an overwhelming victory to the pro-sound money candidate, Alex Mooney. Representative Mooney is one of the leading voices in Congress for auditing the Federal Reserve and restraining its powers.
He has called on Treasury Secretary Janet Yellen to come clean about the government’s ongoing interventions in the gold market. And he has put forth legislation that would repeal discriminatory capital gains taxes on gold and silver bullion as well as require a full audit of U.S. gold reserves.
Congressman Mooney will obviously need a lot more allies in Congress – and ultimately a more freedom-oriented White House – to get these sound money reforms enacted. But with millions of voters angry about inflation, smart politicians will acknowledge the source of the problem and propose real solutions to it.
At the root of the inflation problem is excessive government spending that drives excess currency creation by the Federal Reserve.
Nobody seemed to mind inflation when it got funneled into financial assets and inflated profits on Wall Street. But now that it’s hitting the real economy, it’s a real problem for everyone.
As more seek protection from rising price levels and unstable financial markets, the inflation will eventually be reflected in precious metals markets. The inflation cycle that first hit financial assets and then the real economy won’t be over until sound money as the ultimate solution has its moment to shine.
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