Greedy Corporations Causing Inflation

When you become an investor in precious metals it is immediately imperative that you begin to understand human psychology to some degree because it is in fact one of the largest drivers of price action within this industry. The reason for that is because silver and gold have historically been used as buffers against great economic turmoil and so when the public sees a storm coming, the rush to silver and gold picks up. When they see the storm in the rear-view, many sell their metals to realize (if referring to the largest economic storms in recent history of 2000 and 2008) their near 550% golden gains to go pursue a higher standard of living. However, with those crashes now well over a decade in the past – we must focus our attention on the current economic forecast to see how investors are feeling right now.

The most recent economic storm created by the pandemic saw a similar reaction in gold’s price during the immediate uncertainty seeing the price climb just over 37% between December of 2019 and August of 2020. However, the narrative since and right up until now being pushed by Jerome Powell at the Fed, Janet Yellen at the Treasury and even across the pond with Christine Lagarde at the ECB is that the storm is officially over, that they are going to tackle inflation and that their economies are STRONG and will withstand the record rate hikes being thrust upon them. This loud messaging has seen gold capitulate since that 37% run, dropping slightly from the $2,005 high, but still currently sitting up 2% on the year as consumers for the most part have been buying what central bank economists are selling them. With CBS putting out headlines stating, “Companies use inflation to hike prices and generate huge profits, report says” or The Guardian, “Revealed: top US corporations raising prices on Americans even as prices surge” – it has not been difficult to steer the narrative toward blaming producers for the inflation we see – this, of course, being much easier than Powell and company taking accountability for their horribly reckless monetary policies that brought this situation upon the people of the world. When looking at the numbers, it is clear that this is in fact the complete opposite of the truth as the Producer Price Index (PPI) came in at a whopping 10.76%; well over the 8.6% Consumer Price Index (CPI) number. What this shows is that consumers are actually gouging producers. Although, this will not last long because corporations do have a sense of greed in them – their main objective is to make money after all, so you can bet they will not be eating these price increases much longer. There will come a time in the near future when those price increases will be fully beared by the consumer themselves and inflation will skyrocket.

Now, to go even deeper we must again understand that what is even more important than what they are saying in the mainstream, is what is actually happening in the economy because as we mentioned previously – it is consumer behaviour that drives precious metal prices. So what are consumers doing? Well, they are pulling in the reigns and QUICK. Major indexes have almost all entered bear markets with only the Dow Jones Industrial Average holding above that marker, but just slightly, sitting at -18.30% year-over-year (YoY). In addition to that, with consumer saving numbers plummeting to near lows due to pension/401ks being pummelled and credit card debt soaring to all time highs, the public is beginning to realize that frivolous spending can longer take place and that holding what wealth they do have in a secure store of value is of the upmost importance. So is this happening? It appears so. When looking at Retail Sales numbers in the U.S. to gauge how much consumers are spending (a great indicator of public behaviour) they have begun to fall like a rock. In April, the increase in consumer spending from March came in at an increase of 0.7%, so while not a large number; it still showed some growth. For May, we finally fell negative coming in down -0.3% from April. While this may not seem like a large drop or change in behaviour – we must add one factor before making it accurate. Retail Sales numbers ARE NOT adjusted for inflation meaning that the numbers being used are not taking into account that the goods being purchased cost significantly more than they did before. That means the -0.3% drop in spending would be far worse if these calculations simply measured number of goods purchased as that number is FAR LOWER due to the average person being unable to sustain the increased costs of living. People are simply getting far less stuff for even more of their hard earned currency units. That would also mean the previous number of 0.7% would likely show a negative change in consumer behaviour if adjusted for inflation. As you can see, behaviours ARE changing regardless of what Powell says and when the populace do finally rush to sound money to preserve their wealth it will make the toilet paper fiasco of 2020 look like child’s play… and always remember, there is not enough for everyone in the world to have ONE single ounce of silver and gold. Getting out ahead has always benefitted people throughout history – this will ring true for precious metals investors who beat the rush when further economic cracks begin to show.

This week’s product highlight belongs to Perth Mint’s 2oz Dingo Baby & Mother Coin that is available as either a single coin or a tube of ten. It reminds us that no matter how hard things may seem the love of those around you is most important.

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