Real Inflation is Here, Gold is the Hedge of Choice for Savvy Participants

Real Inflation is Here, Gold is   the Hedge of Choice for Savvy Participants


Some economists who favor the ‘dollar/gold price’ seem to be blind to the rise in financial power of the precious Yellow metal.

We believe that real inflation will become a better gauge to see how well this metric is doing.

Using USD’s strength to measure net worth in the US could give 1 the impression that we have a strong Buck. But that yardstick shrinks as inflation erodes it. This means using USD for measurement is not consistent.

Using inflation as a gauge for shrinkage give a better picture of how “strong” or “weak” USD’s measure is when using an accurate gauge.

That thesis explained, as follows:

Measuring net worth in local currencies, we might be pleased with ourselves. However we chose to ignore the fact that the yardstick is not a constant, it is shrinking and sometimes fast. It is the natural corrosive effect of inflation. Knowing this, governments proffer gauges for shrinkage to use such as RPI or CPI, to reassure you that the shrinkage is minimal… and then lies about it.

Note: the CPI is the Consumer Price Index, which is compiled by the Bureau of Labor and Statistics (BLS) and used by agencies like the Fed.

Fed Chairman Powell likes to refer to the CPI for his FOMC announcements. As of December 2018, the CPI inflation rate was 1.9%. This is near the Fed’s “target rate,” and partly why Powell favors it.

This data does not tell the whole story however.

When we look at the data closely we learn that Americans have been losing about 10% of their wealth each year since Y 2014”, basing it the Chapwood Index.

Assuming Chapwood is correct, it says that middle class Americans have lost about 50% of their buying power, and signals inflation is the culprit.

Gold has offset these losses with an average Y-Y gainer of 10%, compounded since Y 2000, indicating gold is a reliable measure of “purchasing power parity.

That being the case, then real inflation may well steal all of your wealth if you do not consider hedging using Gold as insurance.

If you only look at CPI inflation, it has dropped into Chairman Powell’s comfort range. But your standard of living is not factored into the Fed’s calculation.

Real Inflation: applying methodology used in Y 1990, which factored a constant standard of living into the calculation inflation is much higher than the Fed’s version.

In a Shadow Government Statistics chart which you can view here, inflation is currently at around 5.5%.

Using the even older methodology from Y 1980, and real inflation gets closer to 9%. The result is stealth inflation as it not reported by the Fed, and stealing middle American’s wealth.

What follows then is currency weakness, in this case the USD. Meaning Gold gets less expensive and then spikes North.

Insurance works best when you buy it before you need it. If you do not do your homework, knowing when you need it can be challenging.

If the Fed revealed the real inflation rate, whether it’s closer to 6% or 10%, the market would likely panic. People would see the USD true buying power, and that could trigger a financial crisis.

No matter what comfortable story the Fed tells prepare yourself by insuring your portfolio with Gold.

Have a terrific Holiday weekend

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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