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Are You Ready for Some Super Bowl Inflation?

Economics / Inflation Feb 01, 2012 - 01:51 PM GMT

By: Eric_McWhinnie

Economics

January was an impressive month for the markets. The Dow Jones Industrial Average increased 3.4 percent, while the Standard & Poor’s 500 gained 4.4 percent. It was the biggest monthly gain for the major indexes since 1997. However, the real star performances in January came from gold and silver. Gold finished January at $1,737.80 per ounce, representing a remarkable 11 percent gain for the month. It was the largest monthly gain since last August, and the best start to a new year since 1980. Silver, which benefits from a safe-haven and industrial component, surged 19 percent in January, representing its largest monthly rally in nine months.


The Federal Reserve’s recent decision to keep record low interest rates until at least late 2014 is renewing inflation concerns. The central bank is attempting to force investors into riskier assets such as stocks, but investor psychology can be difficult to influence in this day and age. In a post flash crash and MF Global bankruptcy world, investor confidence is shifting towards preserving wealth with hard assets. The Fed’s zero interest rate policy also gives little reason for investors to hold risky paper assets that produce low yields. Pimco’s Bill Gross, manager of the world’s largest bond fund, explained in his monthly letter that low yields may “induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.”

In addition to influencing investor behavior, Fed policy decisions affect consumers on a daily basis. Despite the Bureau of Labor Statistics’ inflation measuring stick showing little price increases, consumers in the real world are experiencing dramatic price hikes. In November, we discussed how the cost of Thanksgiving dinner increased 13 percent from the prior year, the biggest increase in 20 years. According to PNC Wealth Management, the cost to buy all of the 364 items mentioned in the “12 Days of Christmas” carol increased above $100,000 for the first time in history. Now, inflation is showing up once again as America prepares to celebrate its most watched television event.

For more analysis on our support levels and ranges for gold and silver, consider a free 14-day trial to our acclaimed Gold & Silver Investment Newsletter.

By Eric_McWhinnie

http://wallstcheatsheet.com

Wall St. Cheat Sheet : Only days after the S&P 500 crashed to the depths of hell at 666, the Hoffman brothers launched Wall St. Cheat Sheet: one of the fastest growing financial media sites on the web. Like a samurai, our mission is to cut through the bull and bear shit with extraordinary insights, a fresh voice, and razor-sharp wit. We provide the highest quality education and information for active investors, financial professionals, and entrepreneurs.

© 2012 Copyright Eric McWhinnie - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors


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