The CPI data for August came in hotter compared to expected, sparking the biggest marketplace crash since the 2020 COVID lockdowns.
The price of gold furthermore dropped on the news in expectation of the Federal Reserve consuming interest rates higher. Peter Schiff talked about the inflation news on his podcast and said investors need to get gold now before the entry point rises a lot higher. Because at some time the markets are going to figure the particular Fed can’t bend this inflation curve.
After the CPI data arrived, stocks plunged. The Dow Jones fell by over 1, 276 points. It was the seventh-biggest drop (based on points) in history. Other stock market indices charted similar declines. The NASDAQ dropped 5. 16%.
As Peter noted, gold also fell, but not nearly as much as stocks. The yellowish metal was off about 1 . 3%. But gold did manage to close above $1, 700, although it traded below that level interday.
The dollar index charted a huge golf swing, moving from 107. 68 prior to the CPI data then rallying to close with 109. 9. Peter mentioned it was one of the biggest moves within the dollar he’s seen.
“ The financial markets were preparing for a softer CPI. Everybody was underneath the impression that inflation acquired peaked and that it was coming down, and that when we got approval that inflation was decreasing by the August CPI, that could take a lot of pressure off the Fed — that it didn’t have to raise rates as much because the inflation problem had been solved. That’s one of the reasons the dollar sold off. It’s actual one of the reasons gold and silver rallied. In fact , it’s one of the reasons the stock exchange had been rallying, because the Fed was going to be taken out of the video game. Maybe not completely sidelined, yet at least it was going to shade down its rhetoric and maybe not raise rates just as much as people thought. But now that people got this hotter than expected number, people think the Fed is going to increase rates more than they believed. ”
Peter said the markets still don’t understand that even if the Fed hikes by 100 foundation points at the September conference, it will not bend the inflation curve.
“ I don’t know the reason why everybody continues to be surprised once the inflation numbers come out even worse than expected. They imagine what the Fed is doing will probably work. It’s not going to work. The people who think it is don’t understand the type of the problem. ”
The numbers show that Fed can’t earn this inflation fight . Part of the solution is positive true interest rates. If you look at all of the Fed tightening cycles since 1973, the central financial institution has never stopped tightening prior to the Fed funds rate was higher than the CPI.
“ As long as we have interest rates below the inflation rate, even if these people higher, they’re still damaging, and negative interest rates place upward pressure on pumpiing. You can’t fight inflation along with negative interest rates. It’s like saying, ‘ I’m going to fight this fire by flowing gasoline on it. It’s just that I’m only going to put a little bit of gasoline, not as much gas as I was pouring on before. ‘”
Clearly, the open fire will keep getting bigger.
But the markets don’t appear to get this. Otherwise, they will wouldn’t be selling gold into rising inflation.
“ In fact, gold is an inflation hedge. And if investors expect more inflation, they’re going to hedge with gold. And if you expect pumpiing to continue, gold is going to low cost that future inflation to the present, and it’s going to be reflected in the current price of gold. ”
The question is when will individuals expectations change?
“ How many more months can the CPI come out hotter than expected and investors still believe that inflation is going to go away? How many more rate hikes do we need that are ineffective with reducing inflation before traders figure out that it’s not going to work? And of course, how many rate hikes will the Fed be able to get away with without ramming the stock market? Without a crash the real estate market? Without causing a financial crisis? ”
And if the particular Fed keeps pushing that envelope until it holes, will the Fed always hike rates? Or may the Fed pivot when it anticipates or acknowledges the following crisis?
“ As long as it pivots at all, that means inflation is going to run out of control. And if it is, the dollar needs to go way down and gold needs to go way up. ”
Peter said he doesn’t personally think the particular Fed will get away along with very many more rate outdoor hikes.
He remarked that gold didn’t fall everything much given the dive in stocks. In fact , gold didn’t even close over the lows.
“ Maybe that’s several indication that investors are starting to question that narrative. They haven’t completely figured it out yet, but some of the selling may in fact have been exhausted. ”
Peter said at some point you will have divergence and gold will start rising when inflation will be worse than expected. The dollar will fall. And the long end of the bond market will start getting pummelled.
“ If you’re waiting for a sign, several indication that everything is all about to blow up, that’s what you should look for. You should look for a reaction in the bond market and the marketplace and the precious metals market that is opposite of the reaction that we’ve been having. ”
Peter mentioned you shouldn’t wait for that signal to position yourself.
“ I think it’s possible that by the time we get that signal, it could be a much worse entry position than the one we have right now. Since the markets can start anticipating that will signal before we actually get it. I know it’s going to occur eventually. But when it does happen, that’s when you’ll understand the end has finally started. But before it does, take advantage of various other investors’ misunderstanding of what’s going on by increasing your exposure to both gold and silver, and gold and silver exploration stocks. ”