Gold pushes steadily higher on China concerns, global surge in inflation
‘You’d better be hedged. Equities are not attractive on an outright basis.’

(USAGOLD – 10/20/2021) – Gold pushed steadily higher in overnight and early US trading on concern about China’s property sector meltdown, double-digit wholesale inflation in Germany, and a general sense that the global economy might be headed into a period of stagflation. It is up $17 at $1788. Silver is up 48¢ at $24.23. Back in late July, Bridgewater Associates’ Co-CIO Greg Jensen, who has gone on record on numerous occasions advocating gold ownership, made a nuanced observation about how policymakers themselves might become victimized by a rapidly rising inflation rate. We came across those comments while reading John Hussman’s (Hussman Funds) latest market commentary yesterday, and thought them worth passing along.

“Easier and easier money, bigger and bigger deficits – that’s the destiny, until – and this is the big risk.” he said. “A deflationary slowdown is easy for policymakers. They’ll print more money and spend more money. What’s hard is when they’re constrained, and that constraint is obviously inflation and currency, and that’s where the gig will be up. That’s actually what, in our view, everybody has to start hedging in their portfolios – it’s not the next disinflationary or deflationary downturn. It’s essentially inflation and currency problems becoming constraints on the government and this world where we’ve been living in where policymakers can get whatever they want from the stock market and interest rates to one where they can’t. You’d better be hedged. Equities are not attractive on an outright basis.” [Emphasis added.]

Chart[s] of the Day

US producer prices
(2012-September 2021)

Line chart showing US producer prices as a percent 2012 to present

United States Inflation Rate
(As a %, through September 2021)

line chart showing consumer prices as a percent through Septermber 2021

Year ahead inflation expectations
(Percent change monthly 2013 to September 2021)

line chart showing New York Fed inflation expectations

Charts courtesy of TradingEconomics.com

Chart note: In September, U.S. consumer prices registered a 13-year high at 5.4%. Producer prices set a record for the sixth straight month jumping 8.6% year on year. We should keep in mind that wholesale price inflation is not just an American problem. China, for example, reported producer prices rising 10.7% year on year last week, and Germany reported a 14.2% increase in wholesale inflation earlier today. Inflation expectations are an important data set because it, not the CPI inflation rate, is what is formally used to calculate the real rate of return.

 

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