Gold Rising as Fed Insiders Point to Dangers of Inflation

It’s safe to say that inflation has probably been at the forefront of most of our minds for the past few months. Food prices have been rising for the past year, and if you’ve gone to the grocery store recently you’ve probably seen some of your food staples constantly rising in price for the past few weeks.

Gas prices have recently surged, thanks to rising oil prices, and possibly buoyed by the potential for political instability in Eastern Europe thanks to the situation in Ukraine. Used car prices, one of the biggest drivers of price level increases, also continue to rise. And none of this seems to be getting any better.

Now Fed insiders and former Fed officials are finally starting to sound the warning that things could get worse before they get better. That’s what many of us on the outside have been warning for months. And now that insiders are sounding the warning, it should be more obvious than ever that inflation is a problem.

The reaction from gold is not surprising either, as the yellow metal has risen in response to inflation fears. And if inflation, or inflation expectations, continue to rise in the future, the gold price could continue to rise accordingly.

Inflation Will Remain a Problem

San Francisco Fed President Mary Daly has warned that inflation could rise even higher than it is right now before anything improves. Daly has signaled her support for the Fed raising its target federal funds rate, and she believes that the Fed’s actions will ultimately result in inflation returning to more reasonable levels.

It’s understandable that Daly would want to try to put an optimistic spin on things, as you wouldn’t ever expect Fed officials to be anything but rosy in their public pronouncements. And public confidence in the Fed, which is already shaky, would be further affected if current Fed officials were to express a lack of confidence in the Fed’s actions.

Still, the fact that someone at the Fed is publicly acknowledging the fact that things are bad and could get worse is a change from how the Fed normally approaches these issues. And it should give investors some pause.

Inflation Could Impact You for Years

Former Kansas City Fed President Thomas Hoenig is another insider who has sounded the alarm recently about the dangers of inflation. Hoenig’s opposition to the Fed’s quantitative easing policies a decade ago was already well known, and his fears about the consequences of those policies have finally come to fruition.

Since Hoening is no longer at the Fed, nor in any kind of government service, he can speak freely and acknowledge just how bad the Fed’s policies have been. And he too thinks things are going to get worse.

Hoening believes that inflation is going to continue to be a problem for years to come, particularly for wage earners. And if it’s going to be bad for wage earners, you can imagine just how bad it’s going to be for retirees or for those on fixed incomes.

Hoenig has also acknowledged that the Fed is going to have a very difficult time getting inflation under control. He foresees the potential for a 50 basis point rate hike in March, followed by two or three 25 basis point hikes later on this year. After that, it’s anyone’s guess what the Fed will do, largely because the Fed risks causing a recession as it hikes rates.

Hoenig has also acknowledged that risk too, and realizes that the Fed may very well find itself in a situation in which it is forced to loosen monetary policy once again even if inflation remains high. Thus we could see some sort of yo-yoing of inflation, possibly dropping to 4-5% before increasing once again if the Fed loosens policy.

By the time you read this article, the January 2022 inflation numbers will have been published. That will give us an idea of whether inflation will remain high or whether the Fed’s jawboning has been successful at making people think that inflation might start falling. But even if it does fall, it won’t disappear overnight and, as Hoenig says, we could be in for a few years of high inflation and economic misery.

Gold Is the Solution

In response to what has been going on in markets, gold is once again on the move, picking up steam and moving nicely above the $1,800 mark. Demand for gold remains strong, as more and more people and institutions are seeing the dangers posed by high inflation and are taking steps to protect themselves against inflation.

Gold has a track record of protecting investors against the threat of inflation. During the 1970s, when inflation peaked at 11%, gold’s average annualized gains were over 30%. That provided some welcome relief to savers and investors who otherwise would have seen their bank accounts losing value to inflation, or their stocks, which saw less than 4% total nominal growth during the decade.

With the 2020s poised to potentially become another stagflationary decade like the 1970s, gold could play an increasingly important role in many people’s plans to protect their assets against inflation. Will it play a role in yours?

Now more than ever, gold is becoming the asset of choice for those looking to safeguard their retirement savings. Gold is stable, durable, and best of all, is easy to buy. With a highly liquid market and numerous investment vehicles to choose from, there’s a gold investment option for every person and every budget.

Don’t let the warnings of the Fed’s insiders go unheeded. Protect your hard-earned investments before it’s too late. Call the precious metals experts at Goldco today to learn more about how gold can do that.