Look to Prices, Not Official Metrics, for Inflation’s “Smoking Gun”

Look to Prices, Not Official Metrics, for Inflation's Smoking Gun

From Birch Gold Group

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: The overlooked driver of gold and silver prices, what to expect from gold after last year’s fireworks, a heap of ancient gold figures has been found in Sweden.

Look to consumer prices to see where gold and silver are headed

As worries about currency erosion and inflation abound, the question of how to measure these crucial benchmarks has become a cornerstone of the debate. The Federal Reserve’s insistence that inflation is being kept in check and below its annual targeted rate of 2% seems impossible considering the oceans of money poured into the economy. Economics 101 teaches us that, when money supply goes up without a corresponding increase in goods for sale, prices must rise. It’s virtually a law of nature.

Statements by officials have given rise to even more red flags, whether one refers to the Fed’s willingness to let inflation run rampant or former U.S. Treasury Secretary Lawrence Summers’s warning that the Fed would “set off inflationary pressures of a kind we have not seen in a generation.”

But how can the average citizen know whether there has been a sudden spike in inflation, and just how quickly their purchasing power is wasting away?

FAO Food Price Index

The FAO Food Price Index (FFPI) averaged 116.0 points in February 2021, 2.8 points (2.4 percent) higher than in January, marking the ninth month of consecutive rise and reaching its highest level since July 2014. source

Instead of looking to official gauges, which many find to be inaccurate or downright erroneous, a simple inspection of consumer goods and a general assessment of the economic environment could do the trick. Cereal prices have already spiked by 20% on an annual basis, and countries ranging from Russia to Indonesia have suffered similar spikes in prices of basic goods of up to 60%, sometimes within the span of a month. These are all surges in food inflation, a particularly troublesome development.

Let’s remember that rising inflation is, by a fairly wide margin, the preferred way for the government to address its debt and deficit issues. There are, of course, the growing similarities with the 1970-1980 period of stagflation that Summers referred to, one that was marked by a brief run in the stock and real estate sectors followed by massive currency debasement and a general loss of confidence in the U.S. dollar.

Back then, as has so often been the case, those who preemptively stocked up on gold and silver avoided the corrosive inflationary impact on their purchasing power while many remained unaware of it.

In what also seems to be a historic echo of the 1970-1980 period, gold jumped, corrected and then went on to post an even greater high. How has the recent correction in gold price affected buying? If anything, it seems to have encouraged savers to “buy the dip” and added to demand.

Consider Australia’s Perth Mint:

Perth Mint minted product sales for both gold and silver soared during February, with more than 124,000 troy ounces of gold, and more than 1.8 million troy ounces of silver sold during the month. Relative to February 2020, sales increased by more than 400% for gold and 200% for silver.

Or the U.S. Mint: “In January, 220,500 American Eagle gold bullion coins were sold, up 290% from a year earlier.”

It looks like investors are generally wiser today than in the 1970s, and aren’t waiting for official measures of inflation to catch up with reality before protecting their savings with physical gold and silver.

After setting a new all-time high, here’s what could be next for gold

As Forbes contributor Clem Chambers notes, the consensus of last year was that the economic crisis would boil over as deflation. Since then, the market view has shifted from deflationary expectations, to neutral, to calls for a spike in inflation. Chambers, who expected inflation to become the norm from the beginning, now sees a minimum 50% increase in inflation over the next 3-5 years.

Chambers not only believes that inflation could rise by far more than 100% over that period, but also that governments have covertly prepared for it. Even though the Fed gives off mixed signals on inflation, it’s worth noting that periods of rapid inflation have been met with conspicuously quick and government responses (like already having warehouses full of banknotes printed with extra zeroes on them). Chambers reminds us that “governments in dire straights pay their people in freshly minted cash paid for by haircutting savings” with inflation.

Chambers doesn’t expect the “necessary” inflation to be brief or comfortable:

As policy, it’s not going to be short lived because the hole that needs filling is going to be huge and post-war-like, and anyone who wants to know what happens next simply needs to look at what happened to European currencies [after World War 2]. It was ugly.

Instead, it would be worth to focus on where gold, the long-trusted hedge against inflation, currently stands and where it might soon go. Contrary to Chambers’ forecasts for the metal, gold didn’t continue its short-term bullish move that saw it shoot up to $2,070 half a year ago. Instead, it pulled back due to what Chambers sees as a combination of a rush towards crypto and a subdued jewelry sector.

Both of these tailwinds are likely to dwindle over the next few years, once again reminding investors of gold’s essential financial purpose. Wherever crypto is headed, should inflation indeed become prominent, no investor will want to waste time protecting their savings. Likewise, the unique conditions of last year are unlikely to push the jewelry sector down once again. As it recovers, jewelry purchases in Asia could greatly intensify as locals turn to precious metals to protect themselves from their own currency erosion.

With this in mind, Chambers thinks moving into gold over the next few months is a smart move. Short-term price movements in gold don’t worry Chambers considering that he, like most of us, is more concerned with the long-term value of his savings than day-to-day fluctuations.

Swedish archeologists uncover a 1,300-year-old stash of 22 gold figures

While excavating at the site of Aska in Sweden, a team of local archeologists recently came upon a mound of 22 gold figures considered to be somewhat uncommon for the area. Although the team was able to date the stash of figures to roughly 1,300 years ago, their purpose and use isn’t yet fully clear.

Gold figure discovered in Aska, Sweden

Here, the best preserved of the gold foil figures that were recently found at the site of Aska in Sweden. All the figures show couples embracing. (Image credit: Björn Falkevik)

Martin Rundkvist, an archaeology professor at the University of Lodz in Poland, said in a related report that many of the figures have been broken into pieces, making it difficult to even ascertain the correct number.

However, the figures’ gold content has allowed for a high degree of preservation, and the imagery depicted on them looks to have stayed mostly unchanged over the centuries. To avoid damaging the figures, the team sought the help of goldsmith Eddie Herlin who brought the pieces in order.

Upon restoration, the archeologists discerned that the stash of figures holds various depictions of embracing couples. Despite the absence of written accounts regarding such finds, Rundkvist has some theories as to what the figures are and how they ended up at the location. According to him, the stash could be the remnant of a bundle of gifts brought from various places to a king or important leader. Rundkvist says this theory is bolstered by the likelihood that the human-like portraits on the figures either depict princes and princesses or deities.

Furthermore, these golden figures were publicly displayed, Rundkvist says:

They are commonly found in and around postholes in large feasting halls. They were probably glued to the posts supporting the roof and anchoring the king’s high seat.

These golden accents shone in the torchlight of the high king’s feasting hall 1,300 years ago. Visiting ambassadors and travelers merely had to raise their eyes to witness the king’s wealth and importance. How amazing is it we can look back so many centuries and still see clear evidence of gold’s special place in human history?

2021, Featured, food inflation, gold, inflation