ECCLESHALL, STAFFORDSHIRE – Remember when I said earlier in the year that – contrary to popular belief – it was inflation that was the big risk to the bitcoin rally? (See: The big risk to ₿itcoin – 8 January)
Well, the US Labor Department reported the sharpest rise in inflation since the financial crisis last week… and the bitcoin price has fallen by more than 20% since. The press is pointing the finger at Elon Musk, claiming his Tweets have caused the crypto chaos – I think they’re barking up the wrong tree.
But more on that later in the week. It’ll be a short note from me today – I’m just off to interview a gold expert out in the States as a special bonus for subscribers to Gold Stock Fortunes. The yellow metal really is starting to party right now – seemingly at bitcoin’s expense.
For now, I’ll leave you in the capable hands of Will Dahl, who’ll show you how to invest when inflation really starts to roar…
All the best,
Boaz Shoshan
Editor, Capital & Conflict
How to invest when even government admits inflation is here
By Will Dahl – Editor, Southbank Investment Daily
Few people believed my colleague Nickolai Hubble when he warned in July 2020 that “inflation is back, with a vengeance.”
He was going out on a limb. For years, many analysts had been reacting to huge expansions of money supply by governments and central banks with predictions of runaway inflation.
Moreover, those predictions had simply not come true.
And after years of persistently low inflation, a sense of complacency had set in…
You can see it in the headlines that ensued… a month after Nickolai’s warning, Fortune trumpeted the low inflation after $20 trillion in stimulus.
The BBC noted inflation in the UK was at a five-year low.
The Washington Post assured readers inflation wasn’t a danger after President Joe Biden’s $1.9 trillion stimulus.
And just months ago, famous economist Paul Krugman called fears of inflation “greatly exaggerated.”
A year from now, that assurance may rival Krugman’s prediction that a Donald Trump victory would tank the stock market in terms of wrongness.
Many of our readers have written to us wondering what reality government statisticians are living in concerning inflation. The low official rates simply haven’t matched their lived experiences.
But now, even official government statistics are validating Nickolai’s warning…
US inflation hits 13-year high
The US Bureau of Labor Statistics reported a surge in inflation in both the short and long term in its monthly report released last week.
The 0.8% rise in the Consumer Price Index caught analysts off guard. They had been expecting a monthly increase of just 0.2%.
And over the past year, the rate of inflation jumped from 2.6% to 4.2% – the highest rate since September 2008.
And it’s not just the United States… in March a European Central Bank economic forecast projected inflation to rise from 0.3% in 2020 to 1.5% in 2021.
In China, producer price inflation has accelerated to 4.4%, ahead of analysts’ estimates. And as that country is the world’s largest exporter, rising prices there will be felt all around the world.
Last week, almost 100 Chinese steelmakers hiked their prices as iron ore hit a new record of $200 per tonne.
The jump in steel prices calls to mind legendary investment guru Warren Buffett’s observation in Berkshire Hathaway’s annual shareholder conference last month. “The costs are just up, up, up,” Buffett said at the 1 May conference. “Steel costs… just every day they’re going up. People have money in their pocket and they’ll pay the higher prices.”
Even the Japanese economy, notorious for the deflationary spiral it fell into in the 1990s, can’t escape the lash of inflation…
On 12 May, Japan’s Nikkei Stock Average dipped 1.6% on anxiety ahead of the Bureau of Labor Statistics’ inflation report. It was the second consecutive day the Nikkei closed down amid fears that the Federal Reserve may be forced to hike rates.
Of course, that’s a modest dip that most stock markets would envy, as inflation fears took a bite out of indices worldwide.
The FTSE 100 recorded its biggest one-day drop in months last week on inflation fears, while the Dow Jones Industrial Average (DJIA) lost well over 1,000 points.
Even bitcoin – often considered an inflation hedge – took a haircut, dropping by thousands of dollars on Wednesday 12 May alone.
There was one asset that made gains in the carnage: gold.
In the week of the widely anticipated – and feared – US inflation report, gold prices broke through the $1,800/oz barrier and pushed past $1,830/oz.
This will be surprising to many investors who left gold behind after its sell-off from last August, as bitcoin began its 400% run higher.
But it won’t surprise Nickolai’s Gold Stock Fortunes readers… his 9 February recommendation to help readers guard against inflation is up over 20% as I write.
I’d like to publicly congratulate Nickolai for making and sticking to an unpopular and often scoffed-at prediction that turned out to be prescient (and for helping to protect his readers along the way).
But now that the world has woken up the inflationary threat, his July 2020 warning is old news… what he’s predicting next is far more important.
Last week, Nickolai hosted a Gold Summit with six world-renowned precious metals experts. The six-day event covered a bold idea: that today could be the most promising time to buy gold in a century.
If you missed it, you can secure a replay here.
In the meantime, you may remember the note I shared with you last week from the anonymous finance director (FD) who revealed a major spike in commodity prices his firm was keeping under wraps for the time being.
Minutes after I shared his note, he wrote back again with this to say:
Hi William
I was that unnamed FD that you quoted & since then things have got worse still.
I am still happy for you to refer to me as an FD & I can update you that in May ADDITIONAL price rises (on top of those in the first Quarter) that we are facing include cardboard has gone up by 5% + ABS plastic by 7% + other chemicals by 4-8%.
There are also shortages of many raw materials so there is no chance of “shopping around” to try to beat these price rises.
We are being advised that things may settle down in June / July but a % of these price rises have yet to filter through onto the High St.
This is yet another sign the official inflation numbers still haven’t caught up to reality. Many thanks go to our anonymous reader for the tip-off.
Regards,
William Dahl
Editor, Southbank Investment Daily
Category: Investing in Gold