US stocks, bonds, and real estate are in the late stages of a financial market inflation cycle. A new cycle is beginning, and it is the inflation of Main Street America.  

In just a few short months, inflation has become the biggest concern for most money managers!

Will that concern grows to a trigger point where it becomes an institutional stampede out of US stock and bond markets (and perhaps even real estate) and into the gold and silver mining stocks?

It’s likely just a matter of time, and when it happens, the price “geyser” would dwarf anything that occurred in the 1970s. That’s because so much money has been printed by the Fed. 

The money sitting in stocks, bonds, and real estate is a product of insane central bank activity, and it’s not just in America, but in Japan and Europe too.

Double-click to enlarge this US stock market chart.

The stock market is struggling, even with the government announcing a three trillion dollar “recovery” plan. Why?

The answer is: inflation concerns. Institutional money managers cheered as the Fed printed no money for Main Street but threw trillions at financial markets.

While the Fed is still doing nothing for Main Street, the government is starting to get involved in allocating fresh trillions in printed and borrowed money to the real economy rather than just to the financial markets.

I’ve argued that the Fed could print $100-$300 trillion and that money would not be inflationary for Main Street… because it would never reach the hands of the average citizen. 

A lot of gold investors became frustrated in the 2011-2018 period because they watched the money supply soar, but inflation moved only modestly. 

Even when using the Chapwood/Shadow Stats indexes, inflation only rose to 7%-20%, which seems low given the amount of money printing. Using the government’s CPI index (aka the George Orwell index), inflation stays under the 2% threshold.

It seemed that the Fed could print almost endless amounts of money without creating inflation, and Bernanke, Yellen, and Powell all claimed to be trying hard to raise inflation… while they never put a penny of the fiat they printed into the items they claimed to be trying to inflate. 

Now, “times, they are a changin'”; with only a few trillion dollars moving into the hands of Main Street, money managers are already ready for inflation to run hot.  Let me be clear: the inflation risk is not that the Biden administration creates hyperinflation with borrowing and spending.    

The big “risk” (party time for gold bugs) is that modestly higher Biden-fuelled Main Street inflation is all that is needed to create an institutional storm out of the Fed’s darling stock, bond, and real estate markets, and into the Main Street economy and commodity markets.  That will turn an inflationary fire into an inferno.

Double-click to enlarge.  

The US stock market has been in sync with oil price action for quite some time, and higher oil was evidence of strong economic growth.

Now, higher oil quickly raises red flags about inflation, and lower oil raises concerns about growth. This is a sea-change event for all major markets.

Double-click to enlarge. 

Gold has inflation cycle transition pains; real yields (nominal yields minus CPI) are rising. I predicted this would happen exactly as it is playing out; it takes time for inflation to overwhelm rising yields. The good news: A move above the downtrend line and above $1760 would put gold back in medium-term uptrend mode. Strong hands (commercial traders, India, and China) are buyers. Modest patience (little more than a yawn, really) is all that is required of investors.

A parabolic move in gold will begin when nominal rates rise, but the CPI index rises more. That is years away, but it is coming. Let me repeat: This is only the very beginning of the Main Street inflation cycle. It’s the ending stages of the financial markets cycle. Investors need to be positioned to handle the sea change.

My suggestion: own platinum and palladium to manage the “growflation” early stage of the Main Street inflation cycle, and own gold and silver to benefit as money manager concern transitions into outright terror. The transition could happen as a light switch event with little or no warning. 

I’ve predicted that 3 billion Chindians will be buying metal to bet on the inflationary fire that envelops America, and I stand by that prediction. Once the institutional barn door opens it will be a truly awesome sight to behold.

Double-click to enlarge what will obviously be the most important chart of the inflation cycle; the weekly gold chart.  

Note the fabulous touching of the 14,5,5 series Stochastics lines at the bottom of the chart.  A move above the 20 line for the Stochastics lead line is the next green shoot to watch for, and it appears to be imminent!

Double-click to enlarge this GDX “chart of champions”.  

The 14,5,5 Stochastics series is already on a crossover buy signal and the lead line has pushed above 20. There’s a slight hook up on the 5 week moving average and all of this is happening with the price showing bull wedge action. 

Some analysts say that the gold market sentiment is terrible, but China, India, and commercial traders are eager buyers. The emails I get suggest that some gold bug sentiment might be a bit soft, but the hardcore gold bugs of the world are calm and confident. Money managers are moving their hands closer to their sell buttons. They worry that Main Street inflation will create a selling frenzy amongst their institutional brethren, and nobody wants to be last out the door. Thousands of them are already yelling “I smell inflationary smoke!” Clearly, it’s now just a question of how long it will be before “I smell smoke” becomes… “We are all on fire!”