The U.S. Dollar Index is down nearly 10% (-9.7%) in the last five months, due largely to the massive creation of trillions of new dollars in stimulus money and deficit spending by Congress, plus Federal Reserve liquidity for bank lending in the wake of the COVID-19 pandemic. In time, this is almost certain to fuel a new round of higher inflation and higher gold prices. The gold price rise has begun, and now the inflation rates have started to rise, despite the 2020 recession temporarily dampening consumer demand.
Last week, the Labor Department reported that the Producer Price Index (PPI) surged 0.6% (a 7.4% annual rate) in July. That was twice the economists’ consensus estimate of a 0.3% increase. That news was released last Tuesday. On Wednesday, the Labor Department confirmed that the July Consumer Price Index (CPI) surged at the same rate (0.6%), well above the economists’ consensus estimate of a 0.4% rise. The core CPI, excluding food and energy, also surged by 0.6%, the largest increase since January 1991.
Once the economy fully recovers, probably in 2021, all the new liquidity sloshing around in the system, should push prices rapidly higher, pulling the price of gold and silver higher, too. This underlines the role of gold and silver as a currency alternative to the eroding value of the U.S. dollar. The U.S. Treasury is clearly printing too much money and the U.S. is borrowing too much money, which is why the U.S. dollar is weak and international investors are fleeing the dollar in favor of other currencies, and in favor of gold.