Market Report: Inflation hits the headlines
Feb 11, 2022·Alasdair Macleod
In European trading this morning gold traded at 1825, up $18 on the week, and silver at $22.90, up 41 cents. Our next chart puts this in a technical context.

The fundamentals point in the same direction because the dollar and all the other major fiat currencies are in the grip of an inflationary decline, which is equivalent to a rising gold price. Therefore, a marginally higher CPI report yesterday drove global bond yields higher, and equities lower.
Confirming that the problem is with paper currencies, the strong rise in commodity prices continues as our next chart shows.

As well as persistently rising energy prices, backwardations in base metals are driving their prices higher. In the last three months, aluminium has risen 26%, in the last two months copper by 9%, over the last four months nickel by 33%, and so on. The drivers for price inflation are far from abating.
They are being seriously underestimated, as explained in yesterday’s Goldmoney Insight which demonstrated that there is still significant monetary stimulus to be transferred from high levels of currency and credit (M3) to nominal GDP. Figure 1 in the Goldmoney article is repeated below.

The chart represents relative growth rates, and the gap between M3 and GDP is now significant. Nominal GDP would have to increase by 71% relative to M3 to re-establish the relationship. It can only do so through rising prices, irrespective of any recession in business activity.
Clearly, these inflationary pressures are far from over and have the potential to drive market interest rates higher both rapidly and substantially, consequences slipping away from the Fed’s control.
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