Gold In Q2: Price Stabilizes, While Potential Catalysts Build

And despite the selloff in lumber prices, most other commodity prices remain elevated. Oil is now above around $75 a barrel, a three-year high, pushing the average price of unleaded gas to $3.12 per gallon, a 43% increase over last year.

And now record temperatures and a nationwide drought are piling on to the woes. Climate scientists report that 9.8% of the U.S. is currently in an “exceptional drought,” the most severe designation, which includes widespread crop and pasture losses. Roughly 44% of the nation is experiencing some level of drought. This condition could push food prices higher.

While the transitory question may not be answered immediately, if elevated inflation rates persist, investors are bound to look for hedges -- gold and silver being obvious choices.

Fiscal Spending

The Democrat-controlled House approved a $715 billion surface transportation and water infrastructure bill, an early step in President Biden’s $1.2 trillion infrastructure deal, which also has reached tentative agreement with Republicans and is to be finalized by September. These funds would represent a direct injection into the economy, as opposed to QE efforts that tend to inflate asset prices.

In light of the multiple stimulus measures, the Congressional Budget Office projects the deficit will reach 13.4% of GDP this year. That would be the second-largest level since 1945, exceeded only by 2020 spending. This level of fiscal spending is likely to weigh on the U.S. dollar, which would support gold prices.

Stock Market

In light of high stock valuations, the Skew Index—a measure of the difference between the cost of derivatives that protect against large market declines and the right to benefit from such—reached record highs. Gold has historically acted as a buffer against stock market weakness.

Housing Prices

The boom in home valuations is largely global, reaching from the U.S. to the U.K. to China. Bloomberg Economics reports that global valuations are now rising at the fastest pace since 2006.

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