Gold In Q1: Price Softens, But New Catalysts Emerge

Inflation: Most economists and investors anticipate some level of higher inflation, due to a myriad of factors, most of which picked up steam in Q1.

Shortages, stockpiling, supply chain bottlenecks, and some continued Covid-19 restrictions all contributed to increased costs. Kimberly-Clark, J.M. Smucker, and General Mills all announced plans to hike prices.

Meanwhile, U.S. manufacturing expanded at the fastest pace since December 1983. The Purchasing Managers Index hit its highest reading since the survey began in 1997. Factory activity in the Eurozone also grew at its fastest monthly pace in nearly 24 years.

Chinese exporters are raising prices too, due to higher raw-material costs and supply-chain constraints. Prices for U.S. imports from China rose 1.2% over the past year, the fastest increase since 2012 according to the Bureau of Labor Statistics. Shipping rates have climbed roughly 90% since last June, pushing some Chinese exporters to raise prices for new orders by 10% to 15% just since the beginning of March.

And as most investors know, commodity prices have surged. Many are up double-digits over the past year, with lumber prices up triple digits. Some businesses report they have little choice but to pass the higher costs on to customers; according to the National Association of Home Builders, soaring lumber costs have added more than $24,000 to the price of a new home in the U.S.

It seems inevitable consumer price inflation will climb this year—if so, investors are bound to look for hedges, gold and silver being obvious choices.

Housing Trend: US home prices surged by 11.2% vs. a year ago, the biggest increase since the peak in 2006 (based on January’s National Case-Shiller Home Price Index) 

One factor in determining if this trend continues is home availability. According to the National Association of Realtors, there were only 1.03 million homes for sale at the end of February, the lowest level since 1982. Above-average demand may thus continue for a while, but soaring home prices makes the market increasingly vulnerable, which gold can hedge.

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