Preparing for Inflationary Times
By Jeff Clark, Senior Precious Metals Analyst
Friday, 29 March 2013
“All this money printing, massive debt, and reckless deficit spending – and we have 2% inflation? I’m beginning to believe that either the deflationists are right, or the Fed’s interventions are working.” – Anonymous Casey Research reader
The CPI, in our view, does not accurately measure inflation, which accounts for some of the discrepancy our reader is pointing out. However, the proper definition of inflation is “an increase in the quantity of money,” which we’ve had in spades. We’ve not experienced the concomitant increase in prices, which is what we’re addressing in this article.
It’s logical to assume that when you create more of something, you dilute the value of what’s already in existence. That’s exactly what has happened to the US dollar since the 2008 financial crisis hit. Economics 101 says this should lead to higher inflation – yet official Consumer Price Index (CPI) levels remain benign.
It’s this unexpected development that led a reader to pen the above quote. Is the inflation argument dead? If so, does that mean gold’s big run is over? It’s a timely question since the current selloff in gold is largely attributed to low inflation expectations.
This is the first installment in our in-depth series of examining the next big catalysts for the gold price. This month we’re looking at inflation. While a low CPI may be puzzling in the midst of massive, global currency abuse, there are three realities about inflation that convince us it’s not only coming, but will catch an unsuspecting citizenry off guard.
Let’s take a look at why we’re convinced inflation will be one of the next big catalysts for the gold price…
Reality #1: History shows that high levels of debt and deficit spending eventually lead to inflation.