When the Fed said that inflation will be transitory, investors believed them. The issue is what happens when the Fed almost inevitably shifts its stance over the days ahead.

August 6, 2021

Dear Fellow Investor,

It’s hard to believe, but the markets have been taking the Fed at its word.

In my recent issues of Gold Newsletter and Golden Opportunities, I’ve argued that anyone betting against gold would logically have to believe the Fed’s argument that the surge in price inflation was transitory...and that the central bank would indeed be able to begin tightening monetary policy without any adverse effects.

As I noted, “On the other side of the bet are those with a more cynical view, those who believe we cannot avoid serious repercussions from an unprecedented level of monetary accommodation and fiscal spending.”

Of course, my point was that the latter bettors were in gold, and much more likely to be proven correct.

Over the past few weeks, the game has remained in play, with no winners yet declared.

For their part, investors have been watching shifts in messaging from the Fed, which has been delivering some hints of potential rate hikes a couple of years down the road. In addition, the ongoing spike in price inflation gave rise to expectations that the central bank would begin tapering its quantitative easing efforts as soon as September.

The fact that metals have not responded to this spike in inflation shows that investors, or at least the paper-gold speculators, are also buying into the Fed’s assertion that these price hikes are temporary.

Today gold has sold off precipitously as the July nonfarm payroll number was a big positive surprise, indicating that the U.S. economy is barreling ahead. This makes it more likely that the Fed will begin tapering soon…and makes the “stickiness” of the current inflation spike the most important question on the economy.

Remember — the massive and growing federal debt burden ties the hands of the Fed. It has no choice but to keep monetary policy well behind inflation.

My expectation is that the inflation rate will moderate from the recent peak levels, but it will remain stubbornly high for years. This is not only because of the domino effects that wage and commodity increases will have throughout the production pipeline, but also because the Fed will be encouraging higher inflation at every step along the way.

Right now, they’re in the strange situation of having to talk down inflation to calm the markets, while simultaneously stoking the inflationary coals at every opportunity.

They need higher inflation both to eat away the value of the massive federal debt load and to allow them to raise interest rates enough so that they can cut them right back to zero in the next economic crisis.

It will be interesting to watch their rhetorical game over the next quarter or two, as they continue to insist that inflation will moderate “soon.” Eventually, the markets will begin to discount their PR campaign, and gold should benefit as it becomes more obvious how sticky inflation has become.

I discuss all of this in our recently-released August edition of Gold Newsletter. This analysis includes a comparison of the bond market’s expectation of future inflation with the actual inflation we’re experiencing, and the effects on real rates.

But here’s what may be the most interesting part of this month’s issue: I unveiled an amazing new exploration play from one of the mining industry’s most successful entrepreneurs.

Understand this: Our Gold Newsletter readers have made a lot of money with this gentleman over the years.

In fact, the worst performer of all his companies that I’ve recommended “only” rose 544% after our recommendation!

I expect his latest deal to do similarly well...and I reveal all the details on this exciting new play in the August edition of Gold Newsletter.

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All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference

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