Gold surges on hot inflation report
‘Fed can print dollars, but it can’t print commodities and economic growth’
(USAGOLD – 4/12/2022) – Gold surged in early trading as the Labor Department reported consumer prices for March rising 8.5% – the highest inflation rate since the early 1980s. It is up $12 at $1968. Silver is up 14¢ at $25.31. With inflation now indisputably running near double-digit levels, investors have become skeptical of the Fed’s resolve to contain surging prices. “They (the Fed) can print dollars, but they can’t print commodities and economic growth in quite the way that they would like,” independent analyst Ross Norman told Reuters in a report released overnight. “The chance of a significant policy error in not responding quicker (to inflation) looks ever greater and that will feed into gold.”
In a Bloomberg report posted last week, JP Morgan said that commodity allocations could conceivably rise to 1% of global financial assets as investors look to hedge inflation. That would imply, says the firm, “another 30% to 40% upside for commodities from here.” According to Van Eck’s Ima Casanova, though gold has lagged the rest of the commodities complex as inflation has ratcheted up, that might be about to change.
“What we’ve seen in previous inflationary cycles,” she says in a recent interview at Seeking Alpha, “is that gold tends to underperform other commodities in the first part of the inflationary cycle. And then in the second part of the cycle, which we could be entering or closer to entering, gold then outperforms other commodities. So it’s almost like the markets take a little time to really digest inflation, to really believe that inflation is here, that it’s elevated and it’s going to be here for a while before it fully prices in and it reflects in gold’s performance.” If JPM is right that commodities have another 30%-40% upside potential, gold would need to travel a considerable distance to outperform the commodity indices.
Gold and the S&P Goldman Sachs Commodity Index
Chart courtesy of TradingView.com
