What the Inflation Spike Means for Gold

by Nick Hodge

Inflation is back, baby! 

The Consumer Price Index (CPI) leapt 4.2% in April — the fastest increase since 2008 — and considerably higher than the consensus estimate of 3.6%.

This follows years of price stagnation in which the Federal Reserve — despite its low-interest-rate, money-printing policies — failed to boost annual CPI growth to its 2% target. 

A sudden uptick in the price of many commodities, including oil, lumber and many metals, has sent inflation well above that target in the first few months of this year. Shortages of certain manufacturing materials have boosted prices further still. 

So does that mean that we’re headed back to the price increases of the 1970s? Or that the Fed will jack interest rates back up to 5%? 

Not quite. 

But the recent inflation uptick could nonetheless have exciting implications for investors… especially those who are willing to dig for market-beating returns. 

What’s Next For The Money Supply? 

In short, most economists expect the current inflation uptick to be temporary, because it’s largely the result of extraordinary post-COVID economic factors. 

A global shortage of auto materials — coupled with a strong rebound in auto demand driven by reopening — has led to a dramatic spike in the price of both new and used cars in recent months.  

And many other consumer expenditures – rent, for instance – are simply seeing a rebound following unexpected stagnation or decreases during 2020. 

So the current uptick in inflation may not be enough of a sustained trend to justify an interest rate hike… yet. 

But that doesn’t mean it won’t affect investors. 

In fact, there’s a simple and time-tested way to play even short-term upticks in the CPI… 

What the Inflation Spike Means for Gold 

You see, many economic indicators are driven by public perceptions of inflation — not inflation itself. 

Markets aren’t perfectly rational, after all, and consumers tend to overreact to the notion of their money losing value more rapidly than normal.

This phenomenon drives behaviors like panic-buying and hoarding of consumer goods during periods of exceptionally high inflation. 

And it can also boost the price of gold. 

As you can see in the graph below, gold and the CPI have been tightly correlated over the last decade – with gold’s movements typically trailing a few weeks behind those of the CPI. 

If, for instance, you had taken the August 2011 3.81% CPI increase as a signal to buy the SPDR Gold Trust (NYSE: GLD), you could have earned an 11% return in just a month as the yellow metal caught up. 

So even if the current inflation spike dissipates as quickly as the 2011 one, there’s still a short-term opportunity to earn market-beating profits from gold stocks. 

We’ve been tracking a relatively obscure gold stock with the potential to dramatically outperform GLD and the broader markets in the weeks ahead.

You can see why it’s set to go much higher here.

Call it like you see it,