The Bureau of Labor Statistics (BLS)’s December 2021 inflation update pushed the cost of living to a nearly 40-year high of 7% after nineteen consecutive months of increases. A far cry from the Federal Reserve’s self-imposed target of 2%.
The bad news is, inflation is most likely headed higher. The most recent Producer Price Index (PPI) report, which tracks cost increases at the manufacturing level, measured 9.7%. The official BLS press release didn’t even try to sugarcoat the news…
the largest calendar-year increase since data were first calculated in 2010.
Gold futures climbed and continue to climb on this double helping of bad news.
As Peter Spina, president and CEO of Goldseek put it,
The most important takeaway for gold here is that gold is a rocket ship and inflation is its fuel. Now with inflation showing itself to be baked into the system and growing recognition of inflation, gold is going to benefit in a big way.
The U.S. dollar fell against most currencies after these reports. It seems as though global traders aren’t really expecting the Federal Reserve to follow through on its 3 predicted price hikes in 2022 (or maybe they’re already priced in?)
Jeff Wright, chief investment officer at Wolfpack Capital, said of Powell’s recent comments,
No fireworks, rather dovish and no surprises. Gold has done well with Powell’s ‘go slow’ management of the Fed.
On the downside, Wright said there’s a possibility that both quantitative tightening and tapering could accelerate, which would stop a gold rally in its tracks.
What are the odds?
Bond king on “recession watch”
Jeffrey Gundlach, the billionaire “Bond King” doesn’t think the Federal Reserve will be able to thread the needle and bring the economy to a soft landing.
Inflationary pressure is building. If we look at the economy, it’s undeniable that’s been supported by the quantitative easing and the Fed’s balance sheet expansion. And since that’s going away, it is just not plausible to think that we don’t have more headwinds in 2022 for risk assets and, ultimately, for the economy. The signals from the bond market are starting to look a little bit like a pre-recessionary period.
Gundlach believes gold is the best asset to hold in periods like this, when inflation consumes so much of our purchasing power and the world’s central banks don’t seem able to contain the chaos.
He’s bullish on gold because he’s bearish on the long-term value of the U.S. dollar. And when dollars shrink in value, it takes more and more of them to buy the same amount of gold. (From this perspective, buying gold early offers a sort of discount…)