The Labor Department reported yesterday that the Consumer Price Index jumped 4.2% from the prior year. Although a big rise in the CPI had been expected, the actual number came in even higher than economists had forecast.  

According to the CPI data, inflation in April accelerated at its fastest pace in more than 12 years. Higher prices showed up everything from used cars to lumber to energy to food. 

If April’s rate of price increases were to persist for another 11 months, the annual CPI growth rate would be 10.3%. And that wouldn’t even account for items that the CPI excludes or understates.

Jerome Powell and other Federal Reserve officials have repeatedly insisted than any rise in inflation this year will be “transitory.” They cite base effects from last year’s economic lockdown and supply bottlenecks they expect to be temporary.

But investors appear to be concerned that inflation is now becoming a much bigger problem than the Fed acknowledges. 

Emergency government benefits pumped into pocketbooks and a record-high budget deficit that shows no signs of narrowing will have lasting effects. The cycle of spending, borrowing, and printing by the trillions looks to be more of a permanent than a transitory practice in Washington.

Stocks, bonds, and even precious metals got hit with selling following the CPI report. However, gold did show relative strength versus the S&P 500, which lost 4% for the week through Wednesday’s close. Gold was down a mere 0.5% over that period. 

Gold and silver also succumbed to some modest selling pressure through Wednesday – though they both held up better than the stock market. 

Naturally, many precious metals bulls were disappointed that gold and silver didn’t scream higher on the inflation news. The reason they didn’t has a lot to do with interest rates. Bond yields moved up and futures markets began pricing in higher probabilities for a Fed rate hike by the end of the year.

When it becomes clear that central bankers won’t get out in front of inflation with a sufficient number of rate hikes anytime soon, that’s when precious metals markets can be expected to take off. Gold and silver thrive during periods of negative-trending real interest rates – and that includes rate-hiking cycles where the Fed is almost always behind the curve.

Although bullion buying has been strong in 2021, precious metals markets have continued to be overshadowed by the cryptocurrency craze.  Bitcoin and more recently Dogecoin have been all the rage among digital speculators.

Last weekend, billionaire Tesla CEO and cryptocurrency aficionado Elon Musk hosted Saturday Night Live.  During the “Weekend Update” segment, Musk’s character was repeatedly asked to explain what Dogecoin is. He retorted that it’s just as real as the U.S. dollar, which isn’t far from the truth.

SNL Weekend Update Anchor #1: So, what is Dogecoin?

Elon Musk: Yeah, like I said, it's a digital currency.

SNL Weekend Update Anchor #1: Like, okay, for instance, this is a dollar, right? It's real. See?

Elon Musk: Sort of. Sort of real. Yeah.

SNL Weekend Update Anchor #1: So, what is Dogecoin?

Elon Musk: About as real as that dollar.

SNL Weekend Update Anchor #1: Now Colin, are you making any sense of this?

SNL Weekend Update Anchor #2: I've actually been reading a lot about it, yeah. I'm trying to diversify my investment portfolio. My question is what is Dogecoin?

Elon Musk: I'm glad you asked.

SNL Weekend Update Anchor #1: It's a good question.

Elon Musk: Well, it's the future of currency. It's an unstoppable financial vehicle that's going to take over the world.

SNL Weekend Update Anchor #1: I get that, but what is it, man?

Elon Musk:    I keep telling you. It's a cryptocurrency you can trade for conventional money.

SNL Weekend Update Anchor #1: Oh, so it's a hustle.

Elon Musk: Yeah, it's a hustle.

Musk has been accused of using his platforms to manipulate crypto markets. Some say he single-handedly caused the recent price explosion in Dogecoin with his constant tweeting about it. But after confessing on SNL that it’s a “hustle,” the cryptocurrency promptly sold off. 

Dogecoin began as a joke based on an internet meme and it may well have peaked as a result of jokes made by Elon Musk.

Bitcoin is regarded as a more serious cryptocurrency by way of gaining wider acceptance by the public and businesses. 

But Musk shocked Bitcoin enthusiasts on Wednesday when he announced that Tesla would no longer accept the cryptocurrency as payment. He cited Bitcoin’s hefty energy use as being environmentally unfriendly.

Bitcoin prices plunged as much as 17% on the news

Pressure from social activists and government regulators who have long opposed cryptocurrency could force other major corporations and financial institutions to blacklist Bitcoin.

All this goes to show that despite their massive run-ups to market capitalizations that rival top blue-chip stocks, cryptocurrencies remain fragile. They rest entirely on confidence that can erode in an instant.

By contrast, precious metals don’t derive their value from any celebrity’s comments and don’t depend on the approval of big corporations. 

Gold and silver are valuable based on their history, their aesthetic properties, their scarcity, and their utility. These fundamentals will never go away regardless of where precious metals ultimately fit in the universe of alternative currencies.

Money Metals Exchange and its staff do not act as personal investment advisors for any specific individual. Nor do we advocate the purchase or sale of any regulated security listed on any exchange for any specific individual. Readers and customers should be aware that, although our track record is excellent, investment markets have inherent risks and there can be no guarantee of future profits. Likewise, our past performance does not assure the same future. You are responsible for your investment decisions, and they should be made in consultation with your own advisors. By purchasing through Money Metals, you understand our company not responsible for any losses caused by your investment decisions, nor do we have any claim to any market gains you may enjoy. This Website is provided “as is,” and Money Metals disclaims all warranties (express or implied) and any and all responsibility or liability for the accuracy, legality, reliability, or availability of any content on the Website.

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