Inflation Continues to Rise, Pulling Gold Along for the Ride

gold price rising with inflation

With the latest inflation data having just recently been published, the Federal Reserve’s insistence that high inflation is merely “transitory” looks increasingly like a joke. In fact, the Fed’s arguments to that effect are so flimsy that you have to really wonder if the Fed even realizes what is going on in the economy today.

We thought that last month’s inflation figures at 5% year-on-year were high. But the latest figures have shown yet another increase, to 5.4% year-on-year. Even more worrying is the fact that month-on-month inflation was 0.9%, nearly double the 0.5% that economists were expecting. That’s an annualized rate of over 11%, and that’s worrying.

Inflation doesn’t grow that high by accident. It’s the result of deliberate policy decisions undertaken with a purpose. In this case, the purpose was to counteract the effects of foolhardy and ill-considered lockdowns. And now we’re dealing with the consequences in the form of higher prices and an economy that looks like it could soon be coming off the rails.

The reality is that this inflation isn’t just transitory. We could be in for years or even over a decade of higher inflation. And American consumers and investors are getting wise to that fact, adjusting their expectations of inflation accordingly.

When it comes to investing, however, that kind of high inflation can wreak havoc on investment returns, particularly if stock markets drop in the meantime. If you thought it was bad trying to find solid investments when inflation was below 2% and interest rates were near zero, just imagine trying to find good investments when inflation soars into double digits and the Fed still is trying to keep interest rates suppressed.

The Fed may not be able to do that for very long, however, or it might risk inflation spiraling out of control into hyperinflation. We’re entering very interesting times right now, and things could start getting difficult for a great many people.

How Are Markets Reacting?

The rise in inflation is not something that markets want to see. Every announcement of higher inflation is met with panic, leading stocks and bond markets to drop. But if they think it’s bad right now, it could get a whole lot worse.

With expanded unemployment benefits set to expire in the next few months, we’re reaching an interesting crossroads. Will those who remain on the sidelines of the labor market continue to sit things out, or will they try to find jobs? And if they do try to find jobs, what guarantee is there that they’ll be able to find anything that pays them enough to cope with rising inflation?

The 2008 financial crisis really worsened in September and October, when Lehman brothers failed and it looked like the financial system was on the ropes. Autumn is very often a rough time for stock markets anyway, and this year will likely be no exception. Don’t be surprised to see stocks fall after Labor Day.

The real test for markets is going to be how they react to inflation over the summer. We’ll have one more release of inflation data before Labor Day, in early August when most people are going to be on vacation. If it once again is high, or if inflation is rising higher, it may not cause an immediate ruckus, but it will definitely cause some unease that may carry over into September.

And if September’s inflation data is high too, then Wall Street might start to panic. In other words, the next two months could be crucial.

Should You Panic?

Many households have already begun to take notice of the rising prices that are affecting their pocketbooks. Prices of food have risen tremendously, with meat especially rising significantly this year. Used car prices have gone through the roof, not good news for anyone who needs an affordable car. And housing prices are rising so fast that it looks like the mid-2000s housing bubble all over again.

Yes, inflation is a problem, and yes, it’s a big deal. But it’s not a cause for panic right now, and it won’t be a cause for panic in the future as long as you are prepared for it.

As with any problem, the severity of its impact on you depends on how well prepared you are. And part of proper preparation means preparing well in advance of when you think the problem will rear its head.

If you’re well prepared ahead of time, you can weather most crises far better than those who are unprepared. And the time to start preparing to defend yourself against inflation is now.

Gold Can Help You Prepare

When it comes to preparing to protect financial assets against inflation, precious metals such as gold are one of the most popular choices. Gold’s ability to maintain its purchasing power in the face of inflation is well known, and the yellow metal really shines when the economy is in a difficult spot.

During the 1970s, for instance, gold grew at an annualized growth rate of over 30%, far outpacing inflation. In the aftermath of the 2008 financial crisis, gold nearly tripled in price. And today gold is rising once again due to persistent high inflation and the growing realization that the Fed is powerless to stop it.

Just yesterday gold saw strong gains after Fed Chairman Jay Powell’s semiannual testimony before Congress. And with inflation continuing to rise, expectations are for gold to continue rising in price, with $2,000 gold a definite possibility by the end of the year.

The higher inflation goes and the longer it lasts, the better that should be for the gold price, as gold traditionally excels during times of high inflation. So if you’re looking to protect your savings, maybe it’s time for you to start thinking about gold.

With a gold IRA, you can protect your wealth with an investment in physical gold coins or bars, while still enjoying the same tax advantages as a conventional IRA account. You can even transfer or roll over assets from your existing IRA, 401(k), TSP, or similar accounts into a gold IRA tax-free, allowing you to protect the gains you’ve made already and position yourself to take advantage of future gains in the gold price.

But remember, the time to start preparing yourself is before things get any worse. So if you have retirement savings you want to protect against inflation, call the precious metals experts at Goldco today to learn more about how gold can help safeguard your savings.

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