So now gold appear to be moving. What took the market so long to catch on with inflation?
The answer is, you are asking the wrong question. The market has already priced in the current inflation and it did it a year ago.
Now what we are seeing is the hive mind calculation what ‘Covid ‘Delta’ is going to do.
So let me illustrate:
The market is now looking into 2021 and it is no longer seeing tightening it is seeing central bank liquidity operations off and away into 2023 and beyond. It is seeing the inflation picture in 2022 as still being strong.
So the question is what will be the state of play in 2022 and beyond.
So the problem with Delta Covid is that it is just one of a number of variants and new mutations are just going to keep coming. The observation is, that just like the common cold Coronavirus, it will keep mutating around vaccines and cannot be snuffed out like a ‘Smallpox,’ so that the war with Covid is going to stretch on and on. As such the Covid environment is going to be with us for a long time and while the situation will surely morph, the only way ahead is governments for the foreseeable future is to print money, as they always do in times of crisis and emergency. A post covid period of deflation is even less likely than it was before but the chances of a 50%-100% inflation outcome is also receding because the ultimate hole in countries finances has gone from possibly finite to currently incalculable. That’s is not to say infinate because if you believe in efficient markets you can simply look at the gold price and guess how bad its going to get from the price and as the 1 year horizon goes out with time we will get a handle on that 12 months before it lands on the economy.
Its always good to remember Marianne:
And Ataturk
But its also good to remember that the modern central banks are not run by fools and that what ahead is unlikely to be hyper-inflation, more like just enough to keep making the best of devaluing debts and keeping nominal GDP in range of burgeoning debt levels.
I think its important to remember that inflation and deflation is always and everywhere a result of policy. Never believe otherwise. Inflation is the real sport of kings.