The Fed now has a major problem on its hands. That problem is, you guessed it, the fact that gold has been ripping higher (YEEHAAAA!).
Gold as a Measure for Inflation
Investors see gold as a measure of inflation. Food prices, car prices, home prices, stock prices—practically the price of anything and everything—can rise, and the average American won’t think “inflation.” It’s a much different story with gold.
Once gold starts roaring higher to the point that the average American notices it, then everyone and their mother (even your Lyft driver) starts talking about inflation getting out of control.
I believe we are at that point now or very close to it. Gold went absolutely vertical earlier this year where it hit new all-time highs, rising almost $500 from its March lows. Yes, you read that right. And it’s just the beginning. While it’s consolidated around $1,900 per ounce, gold is predicted to rise much higher in 2021.
This is a signal that the market is “smelling” (telling us) that higher inflation is just around the corner. And because gold is now headline news, the average American is taking notice and waking up.
The Fed Confronting Inflation
The Fed will now either be forced to confront inflation (hike rates or tighten policies) OR begin to lose control. Tightening its monetary policy would mean putting the already weak economy in a headlock just as it’s trying desperately to get back on its feet. This is a guaranteed “depression” trigger and a stock market crash.
On the flip side, ignoring gold’s move higher means letting inflation get out of control. Can the Fed afford to let the inflation genie out of the bottle? The last time it did this was in the 1970s, and inflation didn’t stop until the Fed had raised interest rates to 19%! That’s the Stagflation Decade when gold rose over 2,100% and silver was catapulted almost 3,300%.
US Stagflation and Gold
This is a literal no-win situation for the Fed. One choice leads to a depression/crash. The other leads to stagflation at best. My money’s on stagflation. I believe the Fed would rather risk letting inflation get out of control than triggering a depression. The Fed has always adopted a “kick the can down the road” mentality when it comes to major problems. Inflation will prove no different, which is why I believe inflation will spiral out of control in the coming months. Gold will be your best friend when that happens.
Here’s my age-old advice as it relates to investing in metals today: It’s better to be 3 hours too early to the party than 1 minute too late!