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(Kitco News) – Those who have read my work know that I have been warning over the past few months about the prospect of problematic price inflation in the coming months and / or next few years. I have said that the basic classes “Economics 101” in high school taught that increasing the money supply and its speed in an attempt to stimulate demand in an economy is likely to produce rising prices for goods and services. History has shown this to be generally true. However, it should be noted that the last time major world central banks moved to add significant liquidity to their financial systems just over 10 years ago, such producers did not produce price inflation that everyone would consider problematic. Still, the amount of monetary stimulus created during the 2008 financial crisis is comparable to what has been and will be created during the Covid-19 pandemic. It seems hard to understand that central banks in such a short period of time can print so much money, and yet can escape ‘paying the piper’ in the way.
History shows that significantly rising price inflation stimulates the demand for precious metals and especially gold and silver.
Let’s take a brief look at markets that will be involved, and that can tip us over any “inflation trading” that may occur in the coming months.
US Treasury Notes: The 10-year US Treasury note is the benchmark government security that the market is looking at so closely. This week, the yield on the 10-year went to about 0.66% as of this writing. Just last week, the yield was close to a record low and traded around 0.52%. (Yield moves in the opposite direction of price.) Look at the weekly continuation chart for nearby T-note futures that prices are still uptrend in a longer term and not far below the record high set this spring. For the problematic price inflation notes to collect steam from a perspective of the US Treasury futures prices, neighborhood notes should fall below the long-term support line on June low.
US Dollar Index: The USDX is a basket with six major currencies weighed against the greenback. Look at the weekly chart that the index is currently in a steep downtrend and has just hit a two-year low. A depressing greenback can be considered potential inflation for a number of reasons. The US dollar remains the reserve currency in the world. A weaker greenback in the foreign exchange market could stimulate a shift by investors to hard assets such as red goods, pushing those prices higher due to increased demand. Also, the most important raw materials on most world markets are in dollar price. As the dollar depreciates, those goods become cheaper to buy in non-US currency – which means the better demand for those products is and higher prices.
Goldman Sachs Commodity Index: The GSCI is a course of several important prices for raw materials, including grain, metals and energy, which is a good measure of the general price trends in the raw sector. Look at the weekly chart that prices have made a strong rebound from the low this year – forming a Bullish V-Bottom reversal pattern to suggest even more upside for the index.
Nymex crude oil: The crude oil market made a strong recovery from the spring low, which hit about minus $ 40 a barrel. Crude is probably the leader in the raw materials sector. As price inflation becomes more at stake for traders and investors in the coming months, prices for crude oil cannot be lost and should be trending higher. If the recent rise of raw grades in sideways and choppy trading flies in, the inflation trade is very unlikely to go out.
Lumber: This important building material saw its futures price rise to a record high this week. The carpentry market suggests that rough commodity price inflation is on the horizon.
Buyer: The red industrial metal is also an important building component, especially commercial construction. The weekly chart shows prices rising well – an indication that global construction activity is growing at a good pace. Copper’s price action also falls in the camp of the bull of inflation.
Gold and silver: Gold prices recently hit a record high of $ 2,078, close to Comex futures. Silver futures notched a more than seven year high just recently. Both brands, however posted very strong losses on Tuesday – gold down $ 115 and silver down $ 4.25 at one point. The key question that gold and silver traders are asking is, “was Tuesday’s price action a signal that both markets have placed great peaks?” No one knows the answer to that important question, but there are powerful technical tools that a trader can use to try to determine if and when the metals have or are not peaked. Tuesday’s big drops in gold and silver prices have so far been just major downside corrections in still strong price rises on the charts. Following are price levels that are the latest “response requirements” on the longer term (weekly charts) uptrends that would ignore the respective upward trend of longer term price in gold and silver futures markets as a breach of the downside – and very importantly a strong technical indication that longer market tops are in place. GOLD: $ 1,669 SILVER $ 17.00. See their other important support and resistance lines on the charts. It is very important for a trader and investor to look at price prospects in the long run. One day a bull like bear market does not make or break in the long run.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither does Kitco Metals Inc. nor can the author guarantee such accuracy. This article is strictly for informational purposes only. It is not solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article does not accept any liability for loss and / or damage resulting from the use of this publication.
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