Gold Marches Higher Amid the CPI’s Shocking Jump

Gold is continuing its short-term bullish pattern as year-over-year consumer inflation reached a shocking 4.2%.

Key Takeaways:

  • Gold is up $30 since last week, showing steady gains off its double bottom in March.
  • Yesterday, the U.S. Bureau of Labor Statistics reported a 4.2% increase in prices year-over-year, surpassing expectations and prompting a 3-day stock market selloff.
  • The U.S. Dollar Index bounced off 90 and remains half a point below last week’s level.


Gold experienced a strong week, giving investors a breath of fresh air after months of declines. The stock market suffered a 3-day selloff this week, prompted by shocking CPI data from the Bureau of Labor Statistics. Stock market downturns have been rare over the last year.

When will we see a bigger stock correction?

The chart below shows the Dow Jones Industrial Average over the last year. A 1,535-point drop on the Dow would have been a terrifying proposition during most of the Index’s long history, but not today. The Dow’s decline this week barely registered because of the index’s massive market cap. To signal a trend change, the Dow may need to drop more than 5,000 points.

A renewed era of inflation?

The markets have steered clear of inflation’s sting for more than 10 years. Over the last decade, CPI data has mostly stayed between 1% and 2%. YoY CPI jumped to 4.2% this month, the sharpest rise since September 2008. Economists had only predicted a 3.6% rise.

Many investors are reacting to the news by moving into gold. Monetary metals offer the benefit of perpetual purchasing power, a vital characteristic in this renewed era of inflation.

Gold’s price pattern over the last few weeks has been positively bullish, but it is difficult to confirm the trend until gold overtakes its previous attempt to resume its long-term bull market, which occurred in early January. In other words, we need to see the price reach $1,961.

It is very possible to see gold correct and build a more stable base before making a run at $1,961. If a correction does occur, we are looking at $1,775 and $1,730 as potential entry points.

A long-term look at gold

Gold reached its bottom and began its third great bull market in late 2015. However, the metal did not break through its bear market ceiling until mid-2019. After topping out in August 2020, the pendulum swung to equities, cryptocurrencies, and bonds, although it may now be swinging back toward precious metals.

After the COVID-19 decline in March of last year, gold had a massive spike up to its all-time high, fueled by three factors:

  1. Expectations of economic turmoil
  2. Stock market weakness
  3. Inflation expectations resulting from massive stimulus measures from the White House and Federal Reserve

As the pandemic played out, the first two factors quickly recovered. Economic activity recovered quickly, and the stock market has been rallying for more than a year. Unfortunately, these effects came at the expense of the third factor: inflation.

How should I react?

The long-term outlook of gold strengthens with every dollar the government injects into the economy – so we are already looking at several trillion reasons to own gold. As long as the amount of government stimulus outpaces the cumulative value of goods and services our economy can produce, the cost of everything is going to rise.

We pay attention to technical short-term moves because we are always looking for entry points. We believe in dollar-cost averaging into the market strategically, while always maintaining a long-term outlook.

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Watch Golden Rule Radio for more of what’s in store for precious metals in 2021.