Inflation Beast Roars – Gold Only Modestly Up

Inflation Beast Roars – Gold Only Modestly Up

The inflation beast is growing stronger. Unfortunately for gold bulls, we cannot say the same about the yellow metal. Is sacrifice going on tomorrow?

.first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; }

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

Q3 2021 hedge fund letters, conferences and more

David Tepper’s Foundation Invested In These Funds

Invest

InvestDavid Tepper of Appaloosa Management is one of many hedge funds to found a foundation to use for his philanthropic purposes. The David Tepper Charitable Foundation has invested in a handful of hedge funds and stocks in recent years, including one of Appaloosa’s funds. Here are Tepper’s favorite hedge funds based on the 990-PF filings Read More

“Woe to you, oh earth and sea, for the Devil sends the beast with wrath, because he knows the time is short (…). Let him that hath understanding count the number of the beast,” says the Bible. The current number of the beast is not 6.66%, but 6.8% – this is how high the CPI annual inflation rate was in November.

The number came above expectations and implies further acceleration in inflation from 6.2% in October. It was also the largest 12-month increase since the period ending June 1982, as the chart below indicates.

Gold

Gold

The latest BLS report on inflation also shows that consumer inflation rose 0.8% on a monthly basis after rising 0.9% in October. The core CPI rate increased 0.5% in November, following a 0.6-percent increase in the previous month. On an annual basis, it jumped 5% after a 4.6% increase in October (see the chart above). So, as Iron Maiden sings, “hell and fire was spawned to be released”.

Indeed, November readings clearly falsify central banks’ narrative about transitory inflation (which was already partially abandoned) and confirm my claim that inflation will stay with us for longer. As a reminder, my bet is that we will see the peak of inflation no earlier than somewhere in Q1 2022. Actually, it might be even a bit later, as the Omicron coronavirus variant could contribute to supply disruptions and add to inflationary pressure.

iframe.sm_widget ~ img { width: 1px; }

aff i?offer id=1684&file id=671&aff id=1825

aff i?offer id=1684&file id=671&aff id=1825

What’s important here is to remember that current inflation is not merely a supply problem. It’s true that the energy index is surging, but the shelter index is also rising, and it has even surpassed the pre-pandemic level, as the chart below shows. So, inflation has a really broad nature, which makes perfect sense, as it was caused by a boost in the money supply and strong demand. The BLS report confirms this view: “The monthly all items seasonally adjusted increase was the result of broad increases in most component indexes, similar to last month.”

Gold

Gold

Implications for Gold

The inflationary beast not only reared its ugly head, but it started roaring and growing stronger. The CPI inflation rate jumped to 6.8% in November, and it’s probably not the final number! Actually, it could have been even higher if the Omicron variant of coronavirus had not emerged, slowing down some expenditures.

What does this acceleration imply for the gold market? Well, one week ago I wrote: “My bet is that inflation will stay elevated or that it could actually intensify further. In any case, the persistence of high inflation could trigger some worries and boost the safe-haven demand for gold.” Indeed, inflationary pressure intensified further, which pushed gold prices higher, as the chart below shows.

Gold

Gold

However, I also expressed concerns about the Fed’s reaction to high inflation and its implications for gold:

I’m afraid that gold bulls’ joy would be – to use a trendy word – transitory. The December FOMC meeting will be probably hawkish and will send gold prices down. Given the persistence of inflation, the Fed is likely to turn more hawkish and accelerate the pace of tapering.

The higher than expected inflation rate in November, and a very modest gold’s reaction to it, only strengthen my fears that tomorrow could be a great day for monetary hawks and a sad day for gold. Given such high inflation, the Fed has simply no choice and must accelerate the pace of the tapering and hiking cycle. So, to paraphrase Iron Maiden, sacrifice is going on tomorrow.

On the other hand, gold often bottomed out in December historically (in recent years, it did so in 2015, 2016, 2017, and 2019). We’ll find out soon whether my fears were justified!

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

Arkadiusz Sieron, PhD

Sunshine Profits: Effective Investment through Diligence & Care

Updated on Dec 14, 2021, 1:25 pm

Comments are closed.