Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Gold And Silver Rise As More Investors Aren't Buying The Fed's Messages

By Stefan GleasonMarket OverviewJun 13, 2021 01:47AM ET
www.investing.com/analysis/gold-and-silver-rise-as-more-investors-arent-buying-the-feds-messages-200585593
Gold And Silver Rise As More Investors Aren't Buying The Fed's Messages
By Stefan Gleason   |  Jun 13, 2021 01:47AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

As inflation continues to heat up, gold and silver markets are once again on the verge of breaking out.

On Thursday, the Bureau of Labor Statistics released the much-anticipated Consumer Price Index data. The CPI came in at a full 5.0% year-over-year through May.

The so-called “core” rate, which excludes food and energy, showed an annual increase of 3.8%. That represents the biggest jump since all the way back in 1992.

Meanwhile, Federal Reserve officials continue to downplay the inflation threat. They insist the recent surge is transitory and doesn’t reflect a major trend to come.

But as Denver’s local 9NEWS reported, not all economists are echoing the Fed’s messaging on inflation.

We are again, talking about inflation. That's when prices rise for all sorts of goods and services, therefore our money buys less. It is happening now. Although many economists think it's only temporary and will stabilize once supply disruptions and other effects of the pandemic wear off. But the chief economist for Deutsche Bank disagrees saying that the aggressive stimulus and economic changes in the U.S. will cause inflation to get worse for the next several years.

Investors seem unconcerned about the prospects for future high inflation—at least judging by the market’s response to Friday's CPI headline. The S&P 500 crept up to a slight new record high while bond yields actually moved lower by the end of the day.

As for precious metals markets, gold and silver each advanced slightly toward the tops of their recent trading ranges above $1,900 and $28, respectively.

Metals markets stand to benefit from rising inflation expectations. And interest rate sensitive markets including bonds stand to suffer.

Given an inflation rate of 5%, bondholders and cash savers stuck in low-yielding instruments are already suffering significant real purchasing power losses. Yields would have to move markedly higher in order to generate positive after-inflation returns.

But the last thing the U.S. Treasury wants is to have to pay more interest on its ballooning debt. Key to keeping the government afloat financially is making sure rates stay suppressed at the same time as the Fed pursues policies of higher inflation that knock down the real value of debt.

The scheme works as long as the public can be convinced that high inflation is transitory. And that when the official measures of inflation come in relatively tame, they actually capture the full extent of price levels in the economy.

The Fed’s preferred “core” rate of inflation excludes food and energy and fails to track actual home prices—some of the biggest real-world costs for consumers.

When the public stops believing the propaganda about inflation and starts seeking protection from it, we could see a massive flight from bonds and cash into quality assets. In an inflationary environment, quality assets are those that can retain or gain value in real terms.

Some stock market sectors may fare relatively well. The natural resource sector in particular has the potential to generate gains amid rising inflation. In general, companies that have pricing power and the ability to raise their dividends would be considered high quality.

At the end of the day, though, stocks are financial assets and are vulnerable to selling off in the event of broader market instability. Although no asset is impervious to losing value over any given day, week, or month, real money itself has an unparalleled track record for retaining value over time.

Real money isn’t represented by U.S. Federal Reserve Notes or other fiat currencies. Real money is represented by gold and silver. Unlike financial assets, physical precious metals carry no counterparty risk and are not dependent on third-party promises to pay. The value of gold and silver is the metal itself.

An argument can be made that precious metals are the highest quality assets an investor can own. Gold, in fact, is considered by the Bank for International Settlements to be a “Tier 1” asset within the banking system.

Even central banks around the world, despite refusing to redeem their fiat currencies in gold, continue to hold and accumulate gold in their own reserves. They evidently don’t consider a portfolio consisting entirely of paper promises to be prudent!

A flight to quality may be coming. It will be to investors’ advantage to accumulate quality assets including physical precious metals before the herd sends their prices much higher.

Gold And Silver Rise As More Investors Aren't Buying The Fed's Messages
 

Related Articles

Jeffrey Halley
The Dust Settles By Jeffrey Halley - Jul 27, 2021 2

An air of calm has returned to Asian markets today after the China equity sell-off after escalating government clampdowns on the technology and education sectors. Helping things...

Gold And Silver Rise As More Investors Aren't Buying The Fed's Messages

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Daniel Morel
Daniel Morel Jun 13, 2021 6:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yet another gold and metal exchange scam - look at the charts of the past 10 years 30 years 50 years 80 years or even 100 years / silver and gold were the worst performing assets to hold https://www.longtermtrends.net/stocks-vs-gold-comparison/
Lasse Maltensson
Lasse Maltensson Jun 13, 2021 6:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yes gold won everytime, not sure if people understand that your sarcastic:)
Lasse Maltensson
Lasse Maltensson Jun 13, 2021 6:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
ok it start at 50, well 50 looks good. Not sure if people recommend 100% gold. But gold is in a bull market while stock market is a bubble. Not always good to hold gold but right now it sure is. I hold 50% stocks mopstly commodity mines like copper and Tin. They will also go well in this insane inflation enviroment
Kevin Avila
Kevin Avila Jun 13, 2021 2:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Fed will keep rate low until next year… I honestly don’t they will do anything before then unless we breach 7% CPI MoM.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email