Gold In Q2: Price Stabilizes, While Potential Catalysts Build

The “Transitory” Question

When inflation spiked, the Fed stated it would be transitory. Most investors and economists seemed to agree at the time. But now doubt has started to creep in.

  • Fed Chair Powell acknowledged that a “lasting period of uncomfortably high inflation is a possibility.”
  • St. Louis Fed president James Bullard said the “pickup in prices might persist.”
  • The Bank of England stated, “It is possible that near-term upward pressure on prices could prove somewhat larger than expected.”
  • Larry Summers said Biden's spending plan could overheat the economy and “set off inflationary pressures of a kind we have not seen in a generation.”
  • Noriel Roubini wrote that “today’s extremely loose monetary and fiscal policies, when combined with a number of negative supply shocks, could result in 1970's-style stagflation (high inflation alongside a recession). In fact, the risk today is even bigger than it was then.”

It’s not just government officials and economists. According to a Harvard CAPS/Harris poll in late June, 85% of Americans are “concerned about inflation.” Perhaps for good reason.

General Mills (GIS) recently announced it is raising prices across nearly all its grocery categories, citing the “highest costs in a decade.” Campbell Soup (CPB) and J.M. Smucker made similar announcements, and the Costco (COST) CFO said on their recent quarterly call that “the feeling is that this [inflation] will continue for the most part of this calendar year.”

Meanwhile, the Producer Price Index (a measure of wholesale costs) rose 6.6% in May (latest data available), the fastest increase on record. Input costs also rose at the fastest pace since data collection began in 2007, weighed down by ongoing and severe supply-chain disruptions and labor shortages. Delivery times for suppliers also lengthened to the greatest extent on record in June.

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