This week, Peter reacts to politicians’ sophomoric views on inflation and explains the recent surge in the price of gold. He also comments on the first day of Jerome Powell’s congressional testimony. Be sure to watch Peter’s special extra episode from earlier this week if you missed it.
Peter thinks the price of gold has finally broken free from resistance, and it’s going to keep rising. Because retail investors have been dumping gold recently, a retail sell-off is unlikely to bring gold below where it is now:
“This rally is the first rally to new highs where the public is not participating. In fact, for weeks—actually months— leading up to the new high, the public was getting out of gold. … I think that’s a great contrarian indicator, and I think that’s a sign that this rally has legs, because normally the market peaks when you get a rush of buyers that come in. And now the market gets overbought, it gets saturated, and then there’s a correction.”
Even more promising for gold is the fact the central banks are increasing their purchases of the yellow metal, and they aren’t planning on selling it anytime soon:
“The central banks are the buyers, and they’ve got huge war chests of foreign currency reserves, plus they can print their own money and use that to buy gold. And I don’t think the central banks are that price sensitive. … They don’t want to run the price up, they want to buy it, but their goal is to have more gold, and their goal is not to sell any of this gold.”
If the retail sector stops selling and central banks keep buying gold, they’ll inevitably bid its price up even higher than it is today:
“The market is under supplied, and it’s about to run into a huge increase in demand. And what does that tell you? That means that the price of gold has a long way to go to catch up to clear that market. Gold is very undervalued right now, and it has been for some time, and that is the opportunity to buy it before it’s repriced to a realistic valuation.”
Pivoting to recent political news, Peter takes aim at Congresswoman Maxine Waters, who spuriously claims that housing prices cause inflation. Peter corrects her:
“Housing isn’t driving anything. Housing’s just gone along for the ride. The driver is Maxine Waters and her buddies in Congress. They’re driving the inflation bus, not housing. Housing’s just riding in the bus along with everything else. The driver of inflation is deficit spending and the money that the Federal Reserve prints to monetize that debt.”
Peter also responds to Congressman Brad Sherman, who mistakenly thinks the Fed’s inflation target of 2% should be revised upward. But, as Peter explains, when the 2% figure was decided on, it was supposed to be the upper limit of inflation in the United States:
“They said 2% is as high as we’re going to allow inflation to be. If inflation gets up to 2%, that’s a problem. And so do something about it! … 2% was the ceiling. It was not a target. It was not a goal. It was a limiting ceiling. It meant don’t let inflation get above 2%. That didn’t mean that if it was 1%, you had to try to get the rate up. …No idiot would have said that if inflation is half a percent, we need to increase it to get it up to 2.”
Moving on to another batch of data released this week, Peter analyzes private sector payroll and factory order statistics, urging cautious skepticism, since these numbers are typically revised after the fact in ways that benefit politicians:
“All these numbers you could take with a grain of salt because I expect all of them to be revised down. My guess is a lot of the big revisions are going to be coming out after the election. So you don’t know about them when you cast your vote in November, right? … You were actually in a recession the whole time they were taking credit for not even landing, let alone having a soft one. And it’ll turn out that we actually were in a recession the entire time.”
Finally, as President Biden and others wage a blame campaign against private companies for “shrinkflation,” Peter explains why this is a strategic move meant to benefit those who actually benefit from inflation:
“You have a full-court press now on the part of the government to blame the private sector for inflation. That is precisely why they lie to the public about the definition [of inflation]. That’s why they’ve told everybody that inflation is rising prices, because if the government properly defined inflation as an expansion of the money supply, then they can’t blame greedy corporations for inflation.”
Sadly, the logical end of this campaign is the institution of price controls, which are bound to make economic life worse:
“We’re going to have new commissions. We’re going to have studies, and we’re going to go after those bad guys, and maybe we’ll pass new laws and new regulations to stop businesses from raising prices. That is going to happen. Price controls are coming.”
With the 2024 election quickly approaching, political rhetoric about inflation is only going to get worse. Tune in this Sunday night for Peter’s reaction to both President Biden’s State of the Union Address and more of Powell’s congressional testimony.
