7% Inflation: Who’s to Blame?

CPI reached the highest level since 1982. Policymakers are scrambling to assign blame and introduce solutions that won’t sacrifice the economy or the stock market.

Key Takeaways:

  • Gold is up 2.7% this week, driven by a risk-off market attitude.
  • Policymakers are debating over whether current inflation is a macro or micro problem. Hint: it’s probably the former.
  • Jerome Powell, still seeking renomination as Fed Chair, plans to act on his hawkish pivot in coming months. This will undoubtedly trigger an economic turning point.
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The Fed’s Balance Sheet: What you Need to Know

The Fed plans to reduce bond holdings and increase interest rates in 2022. History tells us gold is one of the strongest assets in this environment.

Key Takeaways:

  • Yesterday’s FOMC meeting minutes signaled another hawkish pivot toward interest rate increases and deleveraging, or reducing the value of bonds held by the Fed.
  • Stocks, bond prices, and gold all took a hit. The S&P 500 was down 2.38%. The tech-heavy Nasdaq 100 was down almost 4%.
  • Gold’s most recent breakout began in August 2018, right in the middle of the Fed’s last bout of deleveraging. Could history repeat itself in 2022?
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Nothing is Free. Especially Government Printed Money.

The Fed’s response to the Great Financial Crisis changed the world of economics forever. We live in the age of free money, which tends to sacrifice long-term economic stability for short-term reward.

Key Takeaways:

  • Gold is holding above its Point of Control, but needs to break through a couple of resistance lines before confirming a long-term bullish trend.
  • Thomas Hoenig, the Fed’s famed dissident during the accommodative monetary shift of the 2010’s, brings light to our modern monetary malaise.
  • Intrinsic value, limited supply, outside of the financial system – the reasons we love gold as a defensive asset.
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Is the U.S. dollar strong, or is everything else just weak?

Once again, gold is stuck below $1,800/oz as the U.S. dollar index rises, the Fed takes a hawkish turn, and geopolitical pressures build across the Eurozone and Asia.

Key Takeaways:

  • Gold is up more than $20 today, boosted by U.S. inflation data but pressured by a strengthening U.S. dollar.
  • The Turkish Lira looks join the ranks of fiat currencies that have printed their own path to destruction. The economic disaster in Turkey is a microcosm of ultra-dovish monetary policy.
  • China’s Evergrande Group is hurtling toward default – another ominous development in the fascinating geopolitical atmosphere we find ourselves in.
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Highflying stocks suffer in the face of Omicron

The Omicron variant poses a new challenge for a global economy already struggling to facilitate enough growth to outpace inflation.

Key Takeaways:

  • Gold dropped 6% after Powell’s renomination as Fed head. The price has still maintained an upward stair stepping pattern since the summer.
  • Powell expressed a hawkish tilt that has investors worrying about interest rate hikes earlier 2022.
  • Stocks with extremely high valuations, mostly centered around innovation and technology, are getting hit hard.
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Gold Heads for its Next Big Test

Retail sales are up, consumer sentiment is plummeting, and gold is thriving on the uncertainty of a wonky, cash-rich environment.

Key Takeaways:

  • Retail sales beat expectations moving into the holiday season, indicating that consumers have the money to temporarily absorb skyrocketing prices.
  • Consumer sentiment hit its lowest level in a decade, even dropping below the level we saw in March of 2020 during the onset of the pandemic.
  • As corporations jack up prices, more and more workers demand higher wages. This inflationary cycle is imbedding itself in the global economy.
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Inflation Hits 30-year high, Gold Surges

Supply shortages, strong consumer demand, and government money printing pushed CPI to 6.2% in October, a three decade high that has investors pouring into gold.

Key Takeaways:

  • Gold’s momentum this week boosted the price almost $100/oz, past a key resistance level and declining trendline.
  • Markets are adjusting to a new narrative around inflation, and the possibility of a turning point in the global economy.
  • The Fed raising interest rates poses an existential threat to overpriced equities, but investors clearly still perceive this threat as far away.
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Gold and Interest Rates

The Fed has finally decided to tighten monetary policy. Let’s look at the historical relationship between monetary tightening and gold performance.

Key Takeaways:

  • Gold shot up to $1,815 today, responding favorably to the uncertainty surrounding the Fed’s decision to reduce asset purchases.
  • Many believe monetary tightening (interest rate hikes, for example) are bearish for gold. History tells us the opposite is true.
  • Companies are reassessing their supply chains in a move that could rewrite the global order and reduce access to cheap labor in coming decades.
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Gold Bulls have the Evidence

Gold is in a consolidation phase, waiting for the markets to change their tune and drive the price higher.

Key Takeaways:

  • Gold bulls are piling on evidence in their case for the yellow metal, including real interest rates, inflation, and global economic growth. When will the price catch up?
  • The past few months have lacked any convincing moves above or below $1,800/oz.
  • The price needs to break above its declining ceiling to argue an end to the bear market that has suppressed gold all year.
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Hey Jerome, is this what you meant by transitory?

Gold mounted a comeback this week as investors turned their attention sharply toward inflation hedges and safe haven strategies.

Key Takeaways:

  • CPI rose to 5.4%. The Social Security cost-of-living adjustment came in at 5.9%.
  • Gold jumped back into the $1,800 range, but still has to climb $35 to make a run at the $1,833 ceiling.
  • The S&P 500 suffered its largest drop all year in September, revealing vulnerability in a stagflationary environment.
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