• FREE Shipping & Insurance on Orders Over $500
    FREE Shipping & Insurance on Orders Over $500
back to top

Inflation is Everywhere

Gold bar stack


Did you know you can get the Sprott Money Weekly Wrap Ups, Ask The Expert, 

special promotions and insightful blog posts sent right to your inbox?

Sign up to the Sprott Money Newsletter here.


We finally got “official” confirmation that inflation has already begun to take off:

 Inflation is Everywhere

The headline CPI year-over-year increase at 4.2% was the highest since 2008. Energy prices rose 25% and gas prices 50%. Rising energy prices filter through to almost everything. Used car and truck prices were up 21%. Rents rose 2.1%. If you substitute home prices for rents, that number more than doubled.

The Fed calls this “transitory”, citing lower prices in April 2020 due to lockdowns in response to the Covid-19 pandemic. The mainstream media were quick to point this out. CNBC added that the rise in prices is because the economic growth is accelerating. The problems with these apologetic excuses for rising prices are many. If these increases are solely based on the low numbers in April 2020, then why have they soared from just one month ago? If the economy is doing so well, why does the Fed continue to print ~$120bln a month and keep the Fed Funds rates at essentially zero? Why is Biden falling all over himself to spend money on everything, it seems, to the tune of trillions in additional fiscal stimulus. No, the economy is not booming, because if all of these stimuli were ended tomorrow, everything would collapse. It’s that simple.

The truth is that unemployment remains extremely high, the labor participation rate low, and we’re seeing supply shocks develop across the economy. This means fewer people producing fewer goods and providing fewer services. At the same time, dollars printed out of thin air are being pumped into the system left and right. How does giving the unemployed a check once a month while providing nothing in return not create higher prices? I apologize for the following patronizing example, but just to illustrate the point clearly:

Say you have 10 cartons of milk and $10 circulating in the economy. All else aside, what is the price of each carton of milk? $1.

Now say you increase the amount of money circulating in the economy to $20. What is the price now? $2. An inflation rate of 100%, from $1 to $2.

Now let’s say that the number of cartons of milk falls from 10 to 5. What is the price of a carton of milk now? It’s $4, because now you have $20 chasing 5 cartons. An inflation rate of 400%, from $1 to $4.

The point being that if you create more money out of thin air and at the same time reduce the amount of goods and services to purchase, prices soar. This is the real reason we’re seeing prices rise, and it’s not transitory. “Hyperstagflation” is already under way. Disagree? Check out these headlines:

Inflation is Everywhere

Want a graph instead?

Inflation is Everywhere

On top of all that, the CPI is widely understood to dramatically understate inflation, so the increases are much worse than the headline numbers. As I like to say, one just has to look at the performance of commodity futures over the past year, or go to Home Depot or the grocery store. It’s not rocket science. This will continue until the monetary and fiscal stimulus stops, small and medium-sized businesses return, and employment rises significantly. Don’t hold your breath, imho.

That was yesterday. Today, we got more of the same:

US Producer Prices Surge Most On Record

Inflation is Everywhere

Both headline and core producer prices soared in April. Negating the transitory nonsense, the month-over-month increases were far higher than expected, double in the case of the headline PPI. These are the prices that filter through to consumer prices over time—i.e., the CPI is likely going even higher. 

If that were not enough, wage inflation is on the rise, too, as employers struggle to get people off the couch who can otherwise live on their stimulus checks. Checks that are unlikely to be inflation indexed. Several States have already begun or are considering a “return to work bonus” in order to get people to go back to work.

Don’t get me started on housing prices. The point being: Inflation is everywhere.

So, what happened to bond yields when these numbers came out? The 10-Year rose from 1.61% to 1.70%. The 30-Year rose from 2.33% to 2.42%. Now this may not seem like a lot, but the market was not buying the Fed’s rhetoric ahead of the inflation numbers and much of the impact was already priced in. Taking this into account, the 10-Year was 1.47% just four days ago and is now at 1.70%. That’s a huge move for bonds in such a short space of time. The 30-Year was 2.16% last Friday.

At the risk of repeating myself, the risk to the upside in the 30-Year yield is capped somewhere between 2.75-3.00%, imho:

Inflation is Everywhere

Assuming inflation not only continues to rise but accelerates to the upside while bond yields are capped, we have an asymmetric risk to the downside in real yields. Precious metals and miners have long-term inverse correlation to real yields. Said simply, if and when real yields dump, watch Gold and the metals soar. I estimate the time for that scenario to play out in weeks.

Inflation is Everywhere

In the meantime, Gold is undergoing a healthy pullback and setting up for a test of the 200-Day Moving Average next at 1855. Through there and new record highs are virtually a given, imho. Support is at 1800 and 1770-50. As long as we remain above the latter support, I am only looking up. I believe the bottom is in place at 1673 now that we have broken 1800, i.e., setting higher lows and higher highs. The trend is up!


Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

About Sprott Money

Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.

Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.

Learn More
Headshot of David Brady

About the Author

David Brady has worked for major banks and corporate multinationals in Europe and the U.S. He has close to thirty years of experience managing multi-billion dollar portfolios including foreign currency, cash, bonds, equities, and commodities. David is also a CFA charter holder since 2004.

Using his extensive experience, he developed his own process utilizing multiple tools such as fundamental analysis, inter-market analysis, positioning, Elliott Wave Theory, sentiment, classical technical analysis, and trends. This approach has improved his forecasting capability, especially when they all point in the same direction.

His track record in forecasting Gold and Silver prices since has made him one of the top analysts in the precious metals sector, widely followed on Twitter and a regular contributor to the Sprott Money Blog.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


Looks like there are no comments yet.