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Inflation Expectations Are Rising Again and Gold Noticed
Your News to Know rounds up the most important stories about precious metals and the overall economy. This week, we'll cover:
- Inflation expectations jumped to 4.6% after the Fed’s rate hike
- Gold is holding up better than old models suggest it should
- Indonesia wants to mobilize an estimated 1,800 tonnes of household gold
If inflation expectations rise after a rate hike, what did the hike accomplish?
The Federal Reserve raised interest rates on September 16.
That alone was noteworthy. The Fed lifted its target range for the federal funds rate by one-quarter percentage point, to 3.75%-4.00%, and said the move would support a “timelier return” to its 2% inflation goal.
In other words, the Fed tightened policy because inflation is still too high.
That is the official story, and it is not wrong.
The Bureau of Labor Statistics reported that the Consumer Price Index rose 0.4% in August and 3.4% over the prior 12 months. Energy was a major reason. The energy index rose 16.3% year over year, while gasoline was up 27.4%.
So, yes, inflation pressure is still visible in the official data.
But here is the part that should bother savers.
After months of rate-hike speculation, after the Fed’s actual rate hike and after all the tough talk about restoring price stability, consumers still expect inflation to get worse.
The University of Michigan’s September survey found that year-ahead inflation expectations jumped from 4.0% in August to 4.6% in September. Long-run inflation expectations also ticked up to 3.4%.
That is not a vote of confidence.
It is one thing for the Fed to say inflation will eventually move back toward 2%.
It is another thing for households to look at gasoline, groceries, insurance, electricity, rent, medical costs and say: I don’t believe it.
And that distinction matters, because what households expect prices to do next can affect the inflation fight itself.
Inflation expectations are not “fake” inflation
Inflation expectations are not the same as measured inflation.
That distinction matters.
The CPI tells us what prices have done across a broad basket of goods and services. Inflation expectations tell us what consumers believe prices will do next.
Those expectations can be wrong.
But they still matter.
If households expect higher prices, they may change how they spend, save and borrow. If businesses expect higher costs, they may set prices differently. If workers expect inflation to keep eating paychecks, they may demand higher wages just to stay even.
That is why central banks watch expectations so closely.
The Fed knows inflation is not only a math problem. It is also a confidence problem.
Once households stop believing price stability is coming back, the Fed has to work much harder to regain credibility.
That is where we are now.
Official inflation is 3.4%. Consumers expect 4.6% inflation over the next year. Long-run expectations remain above the Fed’s target. Energy costs are still painful. And the central bank is trying to convince everyone that one more policy adjustment can make the problem manageable.
Maybe it can.
But that is a lot of faith to place in an institution that spent years telling Americans inflation was under control, transitory, contained, moderating or otherwise not quite as bad as it felt.
This is not about accusing every economist of dishonesty.
It is about recognizing the gap between official reassurance and household experience.
That gap is where gold lives.
The dollar is still the measuring stick – but the stick keeps shrinking
The usual argument against gold in a rising-rate environment is simple.
If interest rates rise, cash becomes more attractive. Government debt pays more. The dollar can strengthen. Gold, which pays no interest, faces a headwind.
That logic is real.
It helps explain why gold can sell off sharply when rate expectations rise.
But it is not the whole story.
The more important question is what those higher rates are actually telling us.
If rates are rising because the economy is healthy, debt is manageable and inflation is under control, that is one environment.
If rates are rising because inflation is stubborn, government debt is enormous and policymakers are trying to regain lost credibility, that is another.
The first is a sign of strength.
The second is a warning light.
Today’s rate-hike story looks much closer to the second.
Gold does not need the dollar to collapse in order to matter. It only needs Americans to notice that the dollar keeps buying less over time.
A dollar can strengthen against other currencies and still weaken against daily life.
It can buy more yen or euros than it did last month, while buying less gasoline, less insurance and fewer groceries than it did a few years ago.
That is the difference between exchange-rate strength and purchasing-power strength.
Gold owners understand that distinction instinctively.
The dollar may still be the world’s main measuring stick.
But the stick keeps shrinking.
Gold is holding up better than the old playbook says it should
That brings us to the second story.
Kitco published a useful analysis arguing that gold is “throwing out the old rulebook".
The basic point is straightforward: by traditional relationships, gold should be much weaker than it is.
The Fed is tightening. The dollar is strong. Government debt yields have surged. Under the old model, those are all supposed to be major headwinds for gold.
Yet gold is still holding near $4,300.
That does not mean gold is immune to higher rates. It is not.
Gold has pulled back from recent highs. It can fall further if the dollar strengthens or if government debt yields keep rising. Anyone who owns precious metals should understand that short-term declines are part of the experience.
But Kitco’s broader point is the one worth remembering:
Gold is not behaving like a simple interest-rate trade anymore.
That is important.
For years, the standard explanation was that gold mainly moved opposite real rates. Rates up, gold down. Rates down, gold up.
That relationship still matters.
But it no longer explains everything.
Central-bank gold buying matters.
Government debt matters.
Currency confidence matters.
Geopolitical instability matters.
The physical gold market matters.
And, maybe most of all, the loss of faith in old monetary assumptions matters.
That is why gold can remain historically high even while old models say it should be lower.
The old model assumes the system still works the old way.
The gold market seems less sure.
Maybe $4,300 gold is not the mystery
Some analysts are treating gold’s resilience as remarkable.
It is remarkable in one sense. A non-yielding metal holding near historic highs while rates rise does tell us something.
But I am not sure it should surprise us.
The last several years have not been normal.
Since 2020, Americans have lived through emergency spending, rapid money creation, a major inflation shock, rising government debt, repeated fiscal standoffs, geopolitical instability, war-related energy shocks and a central bank that keeps changing its posture because the data will not cooperate.
That is not a normal business cycle.
That is a monetary stress test.
So perhaps the mystery is not why gold remains near $4,300.
Perhaps the mystery is why anyone expected it to behave like the pre-2020 world was still intact.
Fidelity’s Jurrien Timmer has made a related point. Kitco reported that Timmer argued gold’s fair value is around $5,000, based on a model connecting gold to global liquidity rather than only to real rates.
That is one analyst’s model, not a guarantee.
But it captures the shift nicely.
Gold is no longer being evaluated only as a reaction to interest rates. It is increasingly being evaluated as a response to liquidity, debt, currency confidence and the health of the financial system itself.
That is a much bigger conversation.
And it helps explain why gold’s current price may look “too high” under one old rulebook while looking entirely rational under another.
The old comparisons are losing their usefulness
It is tempting to compare every inflation scare to the 1970s.
There is some value in that.
The 1970s taught Americans what happens when inflation expectations become embedded, when policymakers lose credibility and when the dollar’s relationship to gold changes dramatically.
But the comparison only goes so far.
The United States of the early 1980s could withstand interest rates that would be nearly unthinkable today.
Government debt was far smaller relative to the economy. Household financial structures were different. The global financial system was less leveraged and less dependent on central-bank reassurance.
Today, the economy is much more sensitive to rate changes.
A 4% policy rate may not sound especially high compared with the early 1980s. But today it lands on top of enormous government debt, expensive housing, high consumer costs and a financial system trained to listen for every syllable from the Fed.
That is why “higher for longer” feels different now.
It is not just about the rate.
It is about what the rate is sitting on.
A dining-room chair may hold just fine on a level floor. Put the same chair on cracked ice, and suddenly the weight matters more.
That is how I think about today’s monetary system.
Rates do not operate in a vacuum. They operate on top of debt, spending, energy costs, inflation expectations and public trust.
That foundation looks weaker than it used to.
Gold’s resilience is one way the market is acknowledging that weakness.
Indonesia wants household gold inside the formal system
The third story this week takes us far from Washington but keeps us on the same theme.
Modern Diplomacy recently published an article arguing that Indonesia should mobilize an estimated 1,800 tonnes of privately held household gold to strengthen the rupiah.
The framing is very official, very technocratic and very easy to miss if you skim it.
The article describes private household gold as “dead capital” sitting outside the formal financial system. It argues that bringing this gold into bullion banking, formal vaulting and digitized gold claims could deepen domestic liquidity and provide a buffer against external shocks.
That is the polite version.
Here is the plainspoken version:
Indonesian households own a lot of gold, and policymakers would like more of it inside institutions where it can be measured, pooled, financed against and used to support national liquidity.
The 1,800-tonne figure should be treated carefully. It is an estimate, not an audited count of every household bangle, coin and bar in Indonesia.
EBC Financial Group reported that the estimate traces to Indonesian officials and should be treated as a government estimate rather than an audited figure. It also noted that Bank Indonesia holds roughly 87 tonnes of official monetary gold, while household holdings may be many times larger.
Even if the estimate is imperfect, the basic point is clear:
Private citizens in Indonesia hold an enormous amount of physical gold outside the central bank.
That fact has attracted official attention.
“Mobilizing” gold is not the same as owning it
We should be careful here.
Indonesia is not literally confiscating household gold in the way Americans remember from Franklin Roosevelt’s 1933 gold order.
At least, that is not what the available reporting shows.
The current discussion is about bullion banking, gold deposits, formal financial products and bringing private gold into the financial system.
That is different from seizure.
But it still deserves scrutiny.
Whenever policymakers describe private savings as “dead capital,” I get uneasy.
Because from the government’s perspective, “dead” often means “not available for official use.”
From a family’s perspective, that same gold may be very much alive.
It may be wedding gold. Emergency savings. A grandmother’s inheritance. A hedge against currency weakness. A way to hold value outside a banking system that has not always earned trust.
One person’s “dead capital” is another person’s last line of financial independence.
That does not mean every gold-deposit program is bad. Some may be voluntary, transparent and useful. A well-run bullion bank can offer convenience, liquidity and formal access to financial services.
But the tradeoff should be stated honestly.
When physical gold moves from a household into an institution, the owner may gain convenience.
But they may also gain counterparty risk, legal risk, access risk and the possibility that their gold becomes part of a broader policy agenda.
That is the part savers should pay attention to.
Governments notice private gold when currencies struggle
Indonesia’s interest in household gold is not happening in a vacuum.
The rupiah has been under pressure this year. Reuters reported in June that Bank Indonesia raised rates in a rare off-cycle move to support the currency after it hit record lows against the dollar.
Again, I do not want to overstate the case.
Indonesia is not the United States. The rupiah is not the dollar. The structure of household gold ownership in Indonesia is very different from American gold ownership.
But the pattern is still worth noticing.
When currencies come under pressure, governments and central banks start looking for balance-sheet strength wherever they can find it.
Sometimes that means raising rates.
Sometimes it means drawing down reserves.
Sometimes it means encouraging citizens to bring gold into the formal system.
Gold has a funny way of becoming “strategic” whenever paper money struggles.
That should tell us something.
For years, ordinary gold owners are told their metal is old-fashioned, inert, unproductive or unnecessary.
Then, when currencies weaken or global liquidity tightens, officials suddenly discover that household gold might be a national resource.
Which is it?
Is gold a relic?
Or is it important enough for governments to build programs around it?
The answer is obvious.
Gold is ignored until it is needed.
Then everyone remembers why it was held in the first place.
The lesson for American savers
Americans do not live under Indonesia’s bullion-banking framework.
But the lesson still applies.
Physical gold is not just a price chart. It is not merely a commodity quote. It is not just something analysts debate when rates move.
It is a form of tangible savings.
That tangibility matters.
A digital claim can be convenient. A bank account can be useful. A formal custodian can serve an important role. A precious metals IRA can make sense for certain retirement savers.
But none of those conveniences changes the basic question:
Do you understand what you own, where it is held and who controls access?
That question is becoming more important, not less.
The Fed just raised rates because inflation remains too high.
Consumers expect inflation to get worse.
Gold is holding up better than old interest-rate models suggest it should.
And overseas, policymakers are looking at privately held household gold as a possible source of national liquidity.
Those are not disconnected stories.
They are different versions of the same story:
Paper money requires confidence.
Gold does not require quite as much.
The Fed can raise rates. It cannot restore lost purchasing power overnight.
The Fed may be able to slow future inflation.
It may even succeed in bringing inflation back toward 2% over time.
I hope it does.
But even if it succeeds, lower inflation does not undo the price increases Americans have already absorbed.
A slower leak is still a leak.
That is why households remain frustrated. They are not only reacting to the latest CPI report. They are reacting to the accumulation of years of rising prices.
The Fed speaks in rates.
Families live in receipts.
That is the gap.
And when consumers say they expect 4.6% inflation over the next year, they are telling us that the gap has not closed.
Gold’s recent resilience should be understood in that context.
It is not a guarantee of future gains. It is not immune to rate hikes. It can fall, sometimes sharply.
But physical precious metals continue to offer something distinct:
A way to diversify savings outside a monetary system that keeps asking Americans for more patience, more trust and more tolerance for eroding purchasing power.
Inflation expectations are rising again.
Gold noticed.
Maybe American savers should, too.
Learn more about how physical gold and silver can help diversify your savings, and request your free 2026 Precious Metals Information Kit today.
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About Peter Reagan
Peter Reagan has covered precious metals and the economy for Birch Gold Group for over 15 years. His articles have been featured in several leading publications, including Newsmax and Zerohedge. At Birch Gold Group, Peter leverages his deep market insights to help educate website visitors and customers on why they should consider diversifying their savings into gold and other precious metals, and how that process works. Due to this commitment to education, his content has become a trusted source of information throughout the industry.
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