Gold: Inflation Is Accelerating

Fundamentals

We do not know the total damage that the pandemic has caused to the economy. We do not know how many evictions are coming. The real estate market is on fire with migration from big cities to smaller, cheaper areas. Pent-up demand and increased printing of money is going to lead to inflation. We already see inflation in soybeans. We talked about soybeans back in March and now they are up about 50% from $8 to $12 a bushel. Food is bound to see inflation in prices. Soybeans are used in many foods as well as various industrial purposes. Soybean meal is fed to animals and for human consumption, while soybean oil also has many uses. Therefore, soybeans are an indicator of the future cost of food. Corn went from $3 to $4.29 a bushel. Wheat went from $4.71 to $6.38. Gold went from $1450 to $2089. All are signs of inflation. We see a combination of pent-up demand and a broken supply chain, leading to inflation. Reinforcing both those factors is the massive printing of money by the government. Stocks related to home improvement and lumber are also shooting up as demand increases and supply chain issues continue.

As vaccines are developed and become available, it is bullish for gold because as the economy comes back, everyone will want to travel, renovate their home, travel and spend, spend, spend. Therefore, demand will sharply increase, leading to shortages and inflation. Stocks are rising fast. Stocks have not corrected and now they are poised to make new highs. We are beginning to head back into possibly a normality economically. Once we are certain we have a vaccine, things are going to slowly get back to normal.

But there is still a lot of risk involved. We are going to have to closely watch the Fed’s position. Inflation is already here. Prices are already rising. The government has already printed trillions of dollars in stimulus. It’s just a matter of time before the market recognizes that inflation is here, and then we will be seeing $3,000 gold.

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Disclosure: I am/we are long GDX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SA). I have no business relationship ...

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