By Mike Gleason
Another set of troubling inflation reports were generating political shockwaves and roiling financial markets.
On Tuesday, the Bureau of Labor Statistics released the latest Consumer Price Index report, which topped last month’s reading to come in at an annual rate of 8.5%.
The Biden administration was deflecting blame for the dramatic surge in costs, branding them the “Putin price hikes.” But not even the administration’s allies in the mainstream media were buying the narrative that it was all Russia’s fault.
CBS News Anchor #1: The U.S. is at its highest level of inflation in over four decades as prices on everyday consumer goods surged in March.
CBS News Anchor #1: That's right. The labor department says gasoline, housing and food prices are the biggest contributors to last month's spike. According to the latest consumer price index, inflation rose 1.2% in March. That's an 8.5% increase from the same time last year. It is the fastest annual rate of inflation since December of 1981.
CBS White House Correspondent: These prices started spiking on all sorts of goods and services before February 24th, when the Russian invasion of Ukraine began. And yet in the week since, the White House has tried to shift blame to the Russian leader saying, "Take it up with him, if you got an issue with these high gas prices."
The truth is that America’s inflation problem didn’t originate with Russia’s invasion of Ukraine. Nor did it begin when Joe Biden was sworn into office.
A good case could be made than Biden’s big spending agenda, along with his restrictions on domestic energy production, exacerbated price level increases in the economy. But, inflation pressures had been building for years thanks to monetary policy that enjoyed the support of the entire Washington, D.C. establishment.
Let’s not forget that it was Republicans who first installed Jerome Powell as Federal Reserve chairman. When they were in power, they cheered on loose monetary policy.
It seemed like a safe political calculation at the time. Inflation pressures had not yet produced sticker shock at grocery stores and gas stations.
But a few lone voices were warning that running up huge budget deficits, suppressing interest rates, and growing the currency supply faster than the economy would ultimately have consequences. Now those consequences were being felt by everyone.
The 8.5% reading on the CPI was only part of the story. Wholesale prices as measured by the Producer Price Index were rising at an even faster pace. On Wednesday, the PPI came in at an 11.2% annual rate.
That meant higher prices were almost certain to continue moving through supply chains down to the consumer. And the real rate of inflation experienced at the consumer level was already higher than what’s being reported officially.
The CRB commodity index surged again last week, up 35% for the year. Precious metals markets were also staging a rally here.
On Friday, gold prices were up 1.3% for the week and were expected (at time of writing) to close there to come in at $1,981 per ounce. The markets were closed for Good Friday.
The silver market gained a healthy 3.6% to trade at $25.92 an ounce. Platinum was up 0.4% to trade at $1,010. And finally, palladium was to end the week down 2.3% to bring prices to $2,421 per ounce.
More investors were waking up to the need to seek inflation protection through hard assets. Demand for physical bullion continued to run strong as the threats of war and currency depreciation hit conventional financial assets, although demand was down slightly from the record-breaking pace we saw in March.
The U.S. bond market was suffering its worst dip in decades. Not only were bondholders losing out to inflation, but they were also getting stuck with huge capital losses as dollar-denominated debt instruments lost market value.
Many investors had wrongly assumed that Treasuries were essentially risk-free. That’s what most financial advisors preach.
The thinking was that the government will never default with the Fed serving as the buyer of last resort. Plus, the Fed’s massive bond buying campaign had been keeping interest rates suppressed and bond values elevated.
That thinking worked out well for investors—until suddenly it didn’t anymore. The risks in owning assets that were artificially propped up was that they could come crashing down to meet reality. That’s what was happening now as the Fed plots further rate hikes and a significant reduction in bond purchases.
Treasuries are not a viable safe haven in an environment of high inflation and rising rates. Gold and silver are.
The U.S. Mint reported sales of more than 426,000 ounces in gold coins during the first quarter of 2022. That’s the highest in 23 years!
And despite the dysfunctional Mint’s failure to secure enough blanks to meet demand for silver coins, sales of silver products overall remained strong. Many investors were avoiding U.S. Mint coins such as Silver Eagles at this time due to high premiums caused by production shortages. They were opting for coins produced by other mints, privately minted rounds, or bullion bars instead.
In other news this week, the Money Metals legislative team helped to secure an expansion of the Alabama sales tax exemption involving gold and silver.
In 2019, Alabama originally removed sales taxes from most gold, silver, platinum, and palladium coins and bars. Legislation signed by Governor Kay Ivey now clarifies that the exemption covers all common forms of bullion, removes burdensome reporting requirements, and extends the sales tax exemption until 2028.
Alabama follows Virginia, where just days earlier Money Metals had helped secure an expansion of a sales tax exemption in that state. In Virginia, the exemption previously did not apply to transactions under $1000, thereby singling out smaller investors for the discriminatory tax. That $1000 will vanish on July 1, making all precious metals purchases non-taxable going forward in the Old Dominion.
Nine states and the District of Columbia still harshly penalize citizens seeking to protect their savings against the serial devaluation of the Federal Reserve Note. These ongoing efforts— which are also aided by grassroots support—are seeking to reduce the number even further.