Gold tracks sideways in advance of Fed; Paul Singer worries that current policy is the ‘road to perdition’

(USAGOLD – 1/26/2021) – Gold tracked sideways in advance of the upcoming FOMC meeting even as investors registered growing concern about stock market stability and price inflation moved back to the front-burner. It is up $3 in early trading at $1861.50. Silver is up 20¢ at $25.63. Elliott Management’s Paul Singer – an investor with considerable influence on Wall Street – is one of those investors worried about inflation. In a recent interview with Grant Williams (of Things That Make You Go Hmmm fame) and Bill Fleckenstein, he offered a pointed reminder of its unpredictable behavior in the past.

“If you look at the inflation of the 1960s and 70s,” he remarked, “inflation came in the mid to late 1960s, from basically very low levels, they didn’t see it coming. They, meaning the policymakers, the central bankers, and when it came, they thought it was temporary and one-off, and one thing leads to another. So we know about the oil embargo of 1973, which took oil prices up three or four times. So wages, prices, guns and butter, the Great Society, the Vietnam War, and increases in the money supply, all combined. But once inflation lifted off, it just kept on going.”

Singer worries that current central bank policies are “the road to perdition.” Destruction would follow, he says, “if inflation really lit up.” Though he only mentions gold passingly – and then in comparison to bitcoin (an instrument he sees existentially as “nothing”) – the scenario Singer envisions has been one under which gold has proven to be a useful holding in the past. We highly recommend the full interview for a down to earth assessment of where we stand and where we might be headed.

Chart of the Day

overaly line chart showing fold and silver price peaks and lag in current chart

Chart courtesy of Seeking Alpha and • • • Click to enlarge

Chart note: In a post at Seeking Alpha, analyst Peter Krauth offers a useful reminder of silver’s undervaluation when compared to gold, as shown above. “In my view,” he says, “as far as investment assets go, silver still remains amongst the most undervalued. But that’s unlikely to last. Let’s look at it from a few perspectives.…Notice that in both 1980 and 2011, silver’s percentage gains were markedly higher than gold’s, easily outpacing the yellow metal. And if you peer over to the right end of the chart, we can see that silver still has clearly a lot of catching up to do. On an inflation-adjusted basis, silver also looks dirt cheap.”

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