Rising Tide of Inflation

While one of the heaviest metals in existence, gold tends to float on a sea of inflation. There are several disruptive events happening on the economic front, with signals of more to come. Normally we don’t think of inflation as disruptive, as it usually just creeps along. But history has shown us that the markers we are seeing now, are often an immediate precursor to disruptive inflationary forces up ahead. Knowing what to look for can help us prepare mentally and financially for the challenges we face, to protect our families from the ensuing financial mayhem. Some of these signals may seem counterintuitive in normal conditions, but we are living in anything but normal economic times. Thankfully, precious metals have seen these conditions before, and can help lead and provide certainty, where the uncertainty of politicians and central bankers abound.

Normally, we would expect rising interest rates to tamp down inflation, and in so doing, tamp down gold and silver prices. That is what the text books often say. But current conditions do not easily align with the text books. In December 2015, the Federal Reserve began raising interest rates, from an extended period of the lowest rates in 5000 years. Rates have increased by 0.25%, each of the 6 times since then, on 12/17/15, 12/14/16, 3/15/17, 6/14/17, 12/13/17, and most recently this week, 3/21/18. The Fed is uncertain whether or not they will be raised 3 or 4 more times in upcoming sessions, but believe the direction is upwards for future rate adjustments. Using an old adage about gold and interest rates, would tell us that higher rates are bad for gold. In our economic environment, however, the opposite has been true.

Rates Rise 1.5%, Gold Rises 28%

Gold was at $1,050 when the first interest rate increase (mentioned above) was put into place back in December of 2015. Since then, gold has increased 28% measured in US Dollar terms, to $1,339 as this article is being finalized. Often, higher rates act as a drag on gold, since gold does not pay interest. But it is not more advantageous to earn an extra 0.25%, or even 1.5%, in a currency that loses 28% of it’s value during that period of time. One of the differences that might explain this anomaly, is that the confidence in the Dollar is less than in years past, due to the massive debt. Normally, rising interest rates would signal a strengthening Dollar. And they have this time, when measured against some other fiat currencies. But not when measured against gold. A good way to shield yourself from the rising price inflation, and falling markets associated…