RE: pasofino gold2 Feb 2022 14:26
Yes, higher wages are a given over time as real-world inflation was c15-20% in 2021 as we know, i.e. around 3x the BS CPI number.
What keeps the inflation train running though is the follow-through of the PPI numbers which have been a solid +20% for many months - that's the increase in cost base for new goods coming to market.
Corporate producers have, so far, been able to sell 2020 cost base goods at inflated 2021 prices hence the stellar profits/rise in general markets we've seen so far.
In 2022, however, with way less discretionary spend available (and 70% of the US "economy" is consumption remember ...) you've now got companies trying to sell 2021 cost base goods (with Copper @ $4 etc) at, cumulatively inflated (+20%*20%), 2022 prices just as retail is tapped out, as evidenced in the return to baseline savings in people's accounts - they're tapped out already.
So there's a concertina effect there - profits simultaneously squeezed by a rising cost base for new goods and a retail market that has been decimated by inflation over the last year.
This is how/why money will move, over time, from those markets into inflation-sensitive instruments like Gold. In an inflationary environment, what do you buy? The thing that hasn't gone up yet of course - the value in Gold miners is simply stellar right now - if you can't buy growth (because it's over, in real terms) then you buy value, it's that simple.
Clearly, the Fed have gotten themselves trapped as they always do (it's not a mistake - they dumped all their shares in November for a reason ...) and whilst they would like to be seen to "fight inflation", the likely very nominal rates rise, if it ever comes, is not going to have a noticeable effect on inflation but will of course put ever more downward pressure on an already sliding economy/GDP and corporate profits etc.
All that said, there's no doubt in my mind that The Money Guys are driving/want/need this strong inflation and I suspect they'll have penciled in a "Goldilocks" stable CPI of around 6% (c15-20% real-world) for the next few years.
What we'll likely see over those years, IMO, is unprecedented money printing - even by recent standards) and genuine negative rates as seen in Europe.
Relatively short-term noise aside, the US simply has to weaken the Dollar if they want to retain the jobs they already have - they're just not cost effective when the average US wage is 4x the average Chinese wage - the pendulum simply has to swing the other way and as long as Gold continues to be priced in Dollars that's very good news for Gold miners :)
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