| Dear John, Gold bugs were excited when gold leaped nearly $25 in yesterday's trading. They should have been more excited by the reason why: The latest CPI numbers showed inflation rising more quickly than anyone expected. The CPI for January rose 0.5%, against expectations of a 0.3% gain. That translated into a year-over-year gain of 2.1% versus expectations of 1.9%.
So by the measure of the CPI, inflation is already above the Fed's 2% target. And this is where it gets interesting.... A Dramatic Change In Perception Since gold's peak in 2011, traders sold gold on any whiff of higher inflation.
That sounds counter-intuitive — gold is renowned as the ultimate protection from inflation — but the market wasn't concerned about that. Instead, traders had become obsessed with Fed policy. And hotter inflation numbers meant tight monetary policies from the Fed.
With Fed policy having become the foundational driver for all asset classes, and with hot-money speculators driving asset prices, you can understand why traders sold gold on any sign that the Fed might tighten more aggressively.
But that changed yesterday.
Yes, gold immediately sold off in reaction to the higher CPI reading. That was probably due to black-box algorithms responding to their programming.
But then humans took control, and the "old" view of gold as an inflation hedge was suddenly reasserted.
In other words, we saw investors start buying gold again as an inflation hedge. This is a major shift in sentiment. Moreover, as higher inflation is on the way, this is enormously bullish for gold.
And consider this: As I've been reporting in Gold Newsletter, the Fed cannot fight inflation as it once did, because our massive debt load makes higher interest rates impossible today.
So once inflation begins to rise, once it takes hold in the economy, it can't be stopped as before. The Fed won't be able to put the fire out, because its fire extinguisher is broken. More Positive Signs... As big as gold's gains were yesterday, silver rose even more. And the mining stock indices beat them both.
That's a classic sign of a powerful bull-market mentality, and an indication that the underlying fundamentals are long-term fears of money debasement.
Bottom line: Yesterday's action is a signal that a major new bull market in gold has taken hold.
As I've been telling our Gold Newsletter readers, the best way to leverage gold's gains is with junior gold development companies — those companies that have established large-scale gold and/or silver resources.
These will be the first to move. And they'll move quickly once mainstream investors understand that this move in the metals is for real.
Later, around mid-year if seasonal trends hold true once again, the focus will shift to exploration stories as drilling begins in the northern latitudes.
I'm highlighting a number of high-powered picks both in the development and exploration categories in Gold Newsletter.
If you hope to capitalize on this new gold bull market, potentially multiplying gold's gains as we did in the last big run, you need to consider subscribing to Gold Newsletter now.
You can do so here.
Regardless, you need to make sure you're positioned in the best junior gold and silver companies now. And also ensure that you have your physical metals holdings properly in place.
Because prices are going higher. All the best,
Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference |
