Inflation is Here To Stay; #Gold and #Silver Can Only Go Up In The Long Run.

Inflation is no longer transitory. High energy and food prices will be the new normal; 9.1%, 40-year high inflation is a global threat, and the FED has turned extremely hawkish. The next rate decision is on July 27. We might see a 0.75 to 1% rise in interest rate, which will surely push every market down to the goblin town again. Or is it?

For sure that high inflation is going to affect the prices of gold, silver, Bitcoin and stocks. But, at the moment, even with 9.1% inflation, we barely see the market bounce. SPX is up like 7%, BTC up 20%, while gold and silver actually went down since the release of the CPI. I heard that gold and silver investors felt discouraged by the price movement. Still, IMHO the selling pressure of gold and silver is just temporary as we might see the metals bounce depending on the decision of Jerome Powell.

[The image shows Jerome Powell contemplating how to screw up the retail investors]

The market right now is at a junction, and it could go both ways inflation or deflation (recession). It’s true that SPX and BTC went up, but what are the investors thinking? Do they think inflation will get worse? Or the FED won’t be hawkish enough to stop the inflation? Even with the imminent rate hike on July 27, crypto folks are still bullish on BTC. Did the rate hike already price in? Of course, I have no answer to these questions. I can only speculate that it’s all a gamble. Hear me out.

There’s a narrative that says FED will not tame the inflation in time, or something could go wrong, which will cause worse inflation or possible hyperinflation. If FED does nothing about inflation, obviously, the inflation will get worse. If the FED decided to raise the rate too fast, the outcome could be recession which would cause production to slow down and eventually deflation, which is arguably worse. In a deflating economy, something might go wrong as the bad debt increases, causing the crucial financial system to cease function. In the end, FED can only print more money to bail out the financial system, and so money starts to inflate again. This is the basic thesis of the stock market and crypto bull.

Despite the downtrend of gold and silver, they are still very valuable in a time like this. Think about it, would you rather buy an asset that has already been pumped (which implied more downside) or buy an asset that is cheaper (because of the sell-off) but valuable and battle-tested by the market. Remember that in this market, you are either long dollar or short dollar, and that is it! There are only a few ways the market can go. The FED cannot raise the rate too quickly, which means inflation is not going to lower anytime soon as the real rate is still deeply negative. I believe gold and silver will pump again as there’s a long way to go before inflation slows down, and even if inflation is tamed, the total m2 supply is still astronomically high; there are only so many gold or silver coins you could buy with those morbidly inflated m2.

It goes without saying that gold and silver are the best inflation hedge available in the market. Even with discouraging price movement right now, I still think so. In the long run, precious metals prices will go up against inflatable fiat. No doubt. What about Bitcoin? No, Bitcoin is not a hedge against inflation (right now), even though it aspires to be. It’s proven by the market that BTC is a risky asset as its correlation with NASDAQ100 is very high. Bitcoin wants to be a digital gold or store of wealth, but investors think of Bitcoin as a risky asset. This is indeed very tragic as risk assets class is like the polar opposite of the store of value as they have to go first whenever the market sees red, while the store of value stays in the portfolio the longest. That’s not to say BTC doesn’t have potential in the long run; perhaps someday, investors will see it as a store of value when its market cap expands.