Inflation: First The Gain, Then The Pain…

Gold and silver markets are exhibiting more signs of breaking out into a rally. 

On Thursday, bond yields pulled back sharply. That helped fuel a new record in the Dow Jones Industrials. But the precious metals sector was an outperformer on the day, with mining stocks leading gold prices to a fresh multi-week high.

With the exception of palladium, precious metals markets have lagged behind other asset classes in 2021. That may be in the process of changing here in the second quarter. 

Meanwhile, industrial commodities, cryptocurrencies, equities, and housing continue to gain ground.  They are benefiting from inflationary policies being enacted by the Joe Biden administration in conjunction with the Federal Reserve. 

Of course, rising inflation pressures are ultimately bullish for gold and silver markets. But for the time being artificial economic stimulus is combining with reopening optimism to jolt the more economically sensitive sectors.

In the wake of $1,400 stimulus checks sent to millions of Americans, consumer spending surged. The Commerce Department reported Thursday that retail sales spiked 9.8% in March. 

Home prices are also surging. The median sales price of existing homes is up 16% over the past 12 months. That’s the fastest pace in 15 years.  Housing is becoming more expensive in large part due to massive increases in the costs of lumber and other building materials.

Inflation is also beginning to show up at the gas pump and grocery store. With the Fed vowing to target a higher official inflation rate, more price pain is likely coming.

In the early stages of inflationary cycles, rising currency supply is typically greeted with celebration. Cash-strapped consumers and businesses see an immediate windfall. Rising demand for goods and services stimulates business revenues and lifts stock values on Wall Street.

First comes the gain, then the pain. 

History suggests that periods of rising inflation are not especially kind to investors.  And the current investing environment is wrought with peril. 

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Disclaimer: Money Metals Exchange and its staff do not act as personal investment advisors. Nor do we advise about or advocate the purchase or sale of any regulated security, listed on any ...

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