It is official; inflation is at the highest level since the 1980s

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EDITORS NOTE We recorded an interview live at 9 PM Eastern Standard Time, I was part of that live podcast to address the record levels of inflation as revealed today. The video is below the Weekend Review

This morning the U.S. Bureau of Labor Statistics released the inflationary numbers vis-à-vis the CPI index. The report, as expected indicated a new higher level of inflation. Economists polled by various new sources got it right! They forecasted that inflation vis-à-vis the Consumer Price Index (CPI) would increase by 0.7% last month. This took the year-over-year number to 6.8%. This is the most severe inflation seen in the U.S. since the 1980s.

Reuters reported that, “Gold gained on Friday as its safe-haven appeal was boosted by elevated U.S. consumer prices, which also cooled some bets for aggressive interest rate hikes since the jump in inflation was not as big as expected.”

Reuters also cited Edward Moya, senior market analyst at brokerage OANDA saying that “The latest inflation report did not come in as hot as some were expecting and that should keep Federal Reserve rate hike expectations between two or three rate hikes in 2022,” Edward Moya, senior market analyst at brokerage OANDA, said, “Gold prices will embrace today’s report as it likely pushes back that first Fed rate hike into the middle of next year… The latest inflation report did not come in as hot as some were expecting and that should keep Federal Reserve rate hike expectations between two or three rate hikes in 2022,”

David Meger, director of metals trading at High Ridge Futures, said “The potential for interest rate hikes does drag at the heels of the gold market, but the underlying fundamental theme is the inflationary pressures, which will be supportive,”

Now that the latest inflationary numbers have been released, the findings will be a critical component that the Federal Reserve will review before releasing its adjusted monetary policy, Wednesday of next week when the revised dot plot will be released before a press conference by Chairman Jerome Powell.

Yesterday’s letter focused upon the length of time it might take for inflationary pressures to subside given the exceedingly high level currently. We looked at one of the most major recessions since World War II at the beginning of 1980. Inflation was even more pronounced than now, with double-digit inflation’s being the norm in 1980 rather than the exception. In 1980 the inflation ranged between 12.52% and 14.76%. It took nearly five years, from 1980 to 1984, to bring the double-digit inflationary level down to an acceptable level between 2% and 4%.

My point in making this comparison is that regardless of the action of the Federal Reserve bringing inflationary pressures back to an acceptable level will be a multi-year, not a multi-month process. The current target of the Federal Reserve is to maintain inflation at around 2%. However, it will take years to bring the current level of inflation down below 4%.

Although many analysts including myself believe that if the inflation numbers came in at the projected 6.8%, we would see a strong upside move in gold. While we were correct in that gold moved higher, we certainly got it wrong when it pertains to the added value that gold obtained in trading today. As of 5:15 PM EST gold futures basis the most active February contract is currently trading up $6.40 and fixed at $1783.10.

Wishing you, as always, good trading and good health,

Gary S. Wagner - Executive Producer