Gold bugs, silver bulls and concerned investors rushed back to the futures markets all week as the U.S. Labor Department announced a 6.2-percent rise in the widely followed Consumer Price Index. Supply chain problems were identified as a partial explanation of the rise in everything from autos, gasoline, ethanol and furniture, to clothing, wages and medical care.
Rents and home prices have been rising sharply as well with the National Association of Realtors reporting that homes are being snapped up in one week, the fastest rate since 1989. Groceries and restaurant prices jumped too with food prices rising even more sharply in nations in South America (due to drought) and flooding in Asia. Nitrogen fertilizer continues to soar which could keep grain prices higher next year.
The accelerating rise in prices was the fastest rate in over three decades and reminds more experienced investors of the rampant inflation periods as government spending or financial uncertainties fueled much larger long-term inflation episodes.
Wheat, corn, beans, platinum and hogs also rose sharply with Kansas City wheat leading the way trading at $8.38, up about 50 cents per bushel on the week. December gold gained over $33 per ounce as of Friday, trading at $1,868 per ounce. The overall explosion in energy prices, both liquid fuels and natural gas, moderated toward week’s end with December crude trading at $81 per barrel midday Friday, unchanged for the week.
Inflation File – America’s First Episodes of Inflation
Though inflation has occurred since money was first invented in Asia and Europe and used as a medium of exchange, early periods of egregious U.S. inflation provide examples of what can and has happened as our fiat monetary system has evolved.
In 1775, the “Continental” currency was printed and issued by our Continental Congress to pay for the American Revolution, but since there was no backing of the paper currency with gold, silver or copper, the Continental eventually depreciated sharply. Inflation exceeded 5,000 percent before the currency was declared worthless.
By the end of the Civil War, the Confederate currency experienced over 5,000-percent inflation, with food becoming so expensive that bread riots occurred in 1863. The hyperinflation which ensued lasted until 1865.
Though those first two inflation periods occurred during wars which led to supply disruptions and shortages, our current pandemic and associated government spending seems just as fiscally and financially threatening. If America’s investors wake up and/or suddenly perceive the threat of inflation, real commodities, unlike stocks, bonds, paper money or cryptocurrency, might appreciate sharply. As one Midwest farmer reminds us, “You can’t eat money or Bitcoin.”