Will Gold Save Souls During Inflationary Apocalypse?
Sunshine Profits | Jun 17, 2022 01:00PM ET
While inflation continues to wreak havoc, gold is reluctant to respond. Will it finally change and the price of the yellow metal rise?
The Fourth Horseman Of The Apocalypse
The end is nigh! There should be no doubt about it now, as more horsemen of the Apocalypse are coming. The first was Pestilence. Two years ago, the inflation .
It doesn’t look very optimistic, indeed. As you can see in the chart below, the annual CPI rate has accelerated from 0.2% in May 2020 to over 8.0% in March and April 2022. Importantly, the core CPI, which excludes food and energy prices, has also surged recently, rallying from 1.25% two years ago to above 6.0% now.
That’s a really high increase in the cost of living that hit society, especially the poor. There are already reports that people are skipping meals or taking desperate measures to save on heating costs (e.g., they are making fires in houses or, in the UK, pensioners are riding buses to keep warm and save on heating). As the chart below shows, March’s reading was the largest since December 1981 for the overall CPI and since August 1982 for the core CPI, as the chart below shows. And inflation rates were already retreating then, while today they are still on a rise.. Inflation rates were already retreating then, while today they are on the rise.
Are they? Well, inflation numbers in April came in slightly lower than in March, so it’s possible that inflation has already peaked. However, the rate was still higher than the consensus estimate of 8.1%, and it may be just a temporary pullback, similar to the one we saw in the summer of 2021. Inflation was less red-hot because gasoline prices declined 6.1% in April, but they spiked again in May (see the chart below), which will contribute to the upcoming inflationary reading.
Get The News You Want
Moreover, as the chart below shows, the shelter index, which is the largest component of the CPI, has been constantly rising (as well as the producer price index ), so there is an ongoing upward pressure on prices. Additionally, widespread lockdowns and an economic slowdown in China would hit the global supply chains again, strengthening the inflationary forces. Last, but not least, the private savings boosted by the pandemic are still elevated, so consumers have resources they can tap. Hence, high inflation is likely to stay with us for some time.
For how long? This is a great question that everyone is asking right now. On the one hand, the pace of growth in the money supply has recently slowed down, as the chart below shows, which gives us some hope for normalization in inflation in the future.
On the other hand, the pace still hasn’t returned to the pre-pandemic levels, so inflation won’t simply disappear. What’s more, there is still a huge overhang in the monetary ‘bathtub’ waiting to come out through the pipeline as inflation. You see, the broad money supply increased by about $6.4 trillion between February 2020 and March 2022, while the real disinflation . Elevated inflation is likely to remain with us this year, and possibly also in 2023.
h2 Good News For Gold?/h2What does it imply for the gold market?
Theoretically, it should be great news, as gold usually shines during periods of high and accelerating inflation. However, “usually” does not mean “always”. As we all know, gold has failed to rise in tandem with the current inflation so far and has been unable to break free from the $2,000 level. As the chart below shows, the yellow metal has remained in a downward trend since March 2022, if not August 2020.
One of the reasons for gold’s disappointing behavior is that rising inflation was accompanied by expectations of higher real interest rates have surged recently despite rising inflation, which is clearly not good news for the yellow metal.
The only hope for gold is that either inflation or the U.S. central bank’s response to it will eventually trigger a stagflation has increased. However, the end is not nigh – unless it is.
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