Inflation pressures persist despite Biden propaganda

As the summer doldrums drag on, precious metals bulls are eying potential support levels for a seasonal bottom.  

The gold market found support at the $1,750 level last month and has since been trading with a slight upside bias. Although the price action hasn’t been especially exciting, base building in these summer months can be a healthy technical process in the context of a larger bull market.

Meanwhile, investors are weighing troubling developments on the inflation front. Price increases are hitting consumers every time they shop, and that trend shows no signs of letting up.

Appliance makers including Whirlpool are announcing price increases of as much as 12% as a result of higher labor and material costs.

Unilever, which owns some of the leading brands on grocery store shelves, warned Thursday that rising costs were eating into profitability.  Everything from ingredients to packaging to transportation is becoming more expensive – and that, of course, will ultimately have to be passed on to consumers.

They can expect to pay more for Cheerios and Tide laundry detergent. Packaged goods giants General Mills and Proctor & Gamble recently implemented price increases.  Some of those increases may be disguised by reductions in unit sizes on certain products – a phenomenon that has been dubbed “shrinkflation.”

But savvy shoppers won’t be fooled. They know that price isn’t the same thing as value. What matters is the cost per ounce of a box of cereal or bottle of detergent. The best value in terms of cost per ounce is usually found in larger sized products.

That is also true to a significant extent when it comes to bullion products.  Fractional sized coins of less than one-ounce tend to cost more than full ounce or larger coins when calculating the costs per ounce. Large bullion bars often provide the best value in terms of metal content.

But there are exceptions to be aware of. Sometimes premiums on pre-1965 silver coins or scratched and dented gold coins are among the lowest available.

And sometimes buyers find utility in fractional sized items or aesthetic value in coins that arrive in mint condition.

Bargain hunters at the grocery store will often opt for generic or store-branded products. In many cases, they have exactly the same ingredients as pricier counterparts next to them on the shelf that are put out by more recognized name brands.

This principle also applies to bullion shopping.  A popular name brand such as the U.S. Mint’s American Eagle will carry a sizeable premium over a round issued by a private mint that is less well known. 

A Walking Liberty Silver Round produced by Money Metals Exchange has the same .999 purity as a Silver Eagle.  If they were both melted down, they would look exactly the same, have exactly the same physical properties, and be worth exactly the same amount. But silver stackers who opt for the Walking Liberty will save a few bucks per ounce compared to the American Eagle, which is manufactured by the poorly run U.S. Mint.

At some point, upward price pressures will again exert themselves on precious metals markets. When they move, they can be expected to move much more dramatically than cereal and soap.

Consumers who are looking to protect themselves from rising shopping bills would be wise to consider buying bullion products while they can still be had at bargain prices.

The underlying drivers of rising inflation aren’t going to abate anytime soon, despite the insistence of Federal Reserve officials and President Joe Biden that the inflation problem is just temporary.

The White House Budget Office had forecast inflation of 2.1% for 2021 in its recent budget proposal. Inflation is running at more than double that rate. It’s running at 5.4% according to the latest Consumer Price Index reading – and higher still according to other measures that may be more accurate.

The Wall Street Journal recently reported that M2 money supply has been growing at an annualized rate of 23.9% since March 2020.

It typically takes several months for a flood of new currency to work its way through the financial system and producer supply chains before finally showing up in retail prices.  So, the monetary inflation currently being pumped out will have consequences well into next year.

Where the next inflation hot spots will emerge is difficult to predict. But it’s a pretty safe bet that gold and silver markets won’t be exempt from the price consequences of the inflation that is already here as well as the inflation that is yet to come.