Today, the Bureau of Economic Analysis, a division of the U.S. Department of Commerce, reported that the cost of living has risen at the fastest pace in nearly 31 years relative to the PCE (Personal Consumption Expenditure Price Index). Costs for goods and services increased by 0.6% in October. This brings the PCE index to 5% year over year. This is the largest increase in inflation since December 1990. This is also confirmed by a government report earlier this month indicating that the CPI (consumer price index) rose to 6.2% in October, the largest increase since November 1990.
We have seen a stable and methodological increase in inflationary pressures in 2021 with July PCE year-on-year of 4.1%, 4.2% in August, 4.4% in September and now 5% in October 2021.
According to a poll conducted by Yahoo! News / YouGov The vast majority of Americans are very aware of this year’s rise in inflation. The survey showed that 77% of Americans say that inflation affects their lives personally. 37% of the respondents said that inflation has affected them “quite a bit”, in addition to the fact that the 40% of the respondents said that it had a “certain” effect.
Record-high inflation levels and the fact that the Federal Reserve is now predicting (admitting) that inflation will be more sustained than originally assumed. The Federal Reserve’s current projections indicate that this pressure will last well into the middle of next year. But many analysts believe this is yet another underestimation by the Fed, which believes inflationary pressures will only ease in the third or fourth quarter of next year.
Many members of the Federal Reserve have indicated that they are open to speeding up the downsizing process, which began earlier this month, so they can raise interest rates faster than expected and expected.
According to Reuters, “A growing number of Federal Reserve policy makers indicated they would be open to speeding up the elimination of their bond-buying program if high inflation persists, and moving faster to raise interest rates,” reports the US Federal Reserve. most recent political meeting. “
The minutes of the last FOMC meeting revealed that “Various participants noted that the (policy-making) committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate faster than participants currently expected if inflation continued to rise. to drive higher than levels in accordance with the Committee’s objectives. “
The revised sentiment among Federal Reserve members has changed the timeline for repeal or interest rate normalization to June next year or as early as April. To achieve this, they need to accelerate the downsizing timeline, which is now very likely. The Federal Reserve meets for the last FOMC meeting in 2021 on 14-15. December.
The net result has been extreme dollar strength and sharp rises in interest rates on US 10-year government bonds and other US debt instruments.
This has shifted the focus of gold investors and traders, who bid the precious metal higher in early November based on concerns about rising inflation, to concerns about interest rate hikes starting much faster than expected. This shift in focus has taken gold futures from an intraday high of $ 1879 on November 16 to today’s low of $ 1777 today.
The market sentiment has shifted in gold from bullish the bearish as a direct result of the double-edged sword of inflationary pressures. For the most part, market participants seem to be taking into account a much more aggressive monetary policy from the Federal Reserve.
With a personal note, where the holiday season begins and the Thanksgiving holiday that takes place tomorrow in the United States, I would like to wish our members and readers of our daily Kitco News “After Hours” comments health and happiness and the return to a certain sense of normalcy after this prolonged pandemic and recession.
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Wish you, as always, good trade and good health,
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