Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

5 Big Drivers of Higher Inflation Rates Ahead

Economics / Inflation Feb 21, 2018 - 03:36 PM GMT

By: MoneyMetals

Economics

Investors got lulled into a state of inflation complacency. Persistently low official inflation rates in recent years depressed bond yields along with risk premiums on all financial assets.

That’s changing in 2018. Five drivers of higher inflation rates are now starting to kick in.


Inflation Driver #1: Rising CPI

The Consumer Price Index (CPI) is a notoriously flawed measure of inflation. It tends to understate real-world price increases. Nevertheless, CPI is the most widely followed measure of inflation. When it moves up, so do inflation expectations by investors.

On February 13th, the Labor Department released stronger than expected CPI numbers. Prices rose a robust 0.5% in January, with headline CPI coming in at 2.1% annualized (against expectations of 1.9%).

In response to the inflationary tailwinds, precious metals and natural resource stocks rallied strongly, while the struggling U.S. bond market took another hit.

Inflation Driver #2: Rising Interest Rates

Since peaking in mid-2016, the bond market has been stair-stepping lower (meaning yields are moving higher). In February, key technical levels were breached as 30-year Treasury yields surged above 3%. Some analysts are now calling a new secular rise in interest rates to be underway after more than three decades of generally falling rates.

The last big surge in interest rates started in the mid 1970s and coincided with relentless “stagflation” and soaring precious metals prices. It wasn’t until interest rates hit double digit levels in the early 1980s that inflation was finally quelled, and gold and silver markets tamed.

Rising nominal interest rates are bullish for inflationary assets such as precious metals so long as interest rates are following the lead of inflation rates. Only when interest rates get out ahead of inflation and turn positive in real terms are rising rates bearish.

The Federal Reserve will face tremendous political pressure to keep its benchmark rate accommodative and also keep boatloads of bonds on its balance sheet in order to suppress long-term rates.

Inflation Driver #3: Trumpian Politics

Donald Trump has tied the success of his presidency to the level of the stock market like no other president has before. It started the very day after election night 2016, when markets experienced a dramatic reversal higher…and never looked back.

Tax cuts, de-regulation, and plans for big infrastructure spending have helped stimulate the economy and equity markets. President Trump touted the stock market during his 2018 State of the Union address. But shortly thereafter the market got hit with heavy selling as Trump’s new handpicked Fed chairman took over at the central bank.

You can bet Jerome Powell will feel the heat from the White House if his policies hurt the stock market. The path of least political resistance is keep inflating – especially given the government’s enormous and growing debt load.

Inflation Driver #4: Rising Deficits

Trumponomics means greater economic stimulus….and larger budget deficits. The fiscal year ahead is now projected to deliver a funding gap of nearly $1 trillion (with future deficits expected to exceed $1 trillion).

These new trillions in spending will just get charged to the national credit card. It currently has a balance of $21 trillion (not including tens of trillions of dollars more in off the book unfunded liabilities).

All this new debt in a period of relative economic strength is setting up for a disaster when the economy eventually turns down and the deficits spike to unimaginable new highs. The Fed can keep printing the dollars needed to keep the government solvent. But at some point, the world may lose confidence in the devaluing currency in which all these federal IOUs are denominated.

The gathering debt crisis virtually ensures there will be a dollar crisis – which means there will be a massive inflation spike to “pay” for the government’s otherwise unpayable debts.

Inflation Driver #5: Rising Commodity Cycle

Commodity markets are cyclical in nature. When prices for a commodity are low, production falls. As new supplies diminish, the market tightens, and prices move higher. The higher prices incentivize producers to invest in production capacity and increase output. Eventually, the market becomes oversupplied, prices fall, and the cycle starts all over again.

Where are we in the commodity cycle now? Most likely in the early stages of a major upswing. Precious metals, base metals, and crude oil have all moved up off their most recent respective cycle lows. Agricultural commodities have lagged but are gaining some upside momentum so far in 2018.

The commodity markets slump from 2011-2016 caused investment in mining, drilling, and exploration to dry up. According to the International Energy Agency, new oil discoveries by 2016 sunk to their lowest number in decades. Meanwhile, gold, silver, and copper mines got “high graded” – leaving the most difficult and most expensive to process ore for future mining efforts that will only be viable with much higher prices.

A position in physical gold and silver should be viewed as a core long-term holding. However, there are some times in the commodity cycle that are more favorable than others for buying.

Right now, the cycle appears set to pressure metals prices higher. How much higher is unknowable. If renewed inflation fears drive investors into gold and silver markets for safety and later, speculation, prices could easily exceed the 2011 cycle highs by significant margins.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2018 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules