Pro Perspectives 4/3/24





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April 03, 2024

The climb in commodities prices continued today.
Let's take a look at the price of gold.
It traded above $2,300 this afternoon.  It's up 13% over the past 24 trading days.  Let's take a look at prior moves of this magnitude in the pandemic/post-pandemic environment.
As you can see above, gold had a move of similar magnitude in mid-April of 2020, in late July of 2020 and in March of 2022.
What was going on?  Inflationary policy.  These 2020 dates were pandemic response related.  Specifically, these spikes in gold align with the fiscal response — more specifically, government putting cash in the hands of citizens (checks, unemployment subsidies and the "Paycheck Protection Program).
The next spike?  The unemployment subsidy was due to expire (end of July), and was re-upped
The gold spike in March of 2022:  Inflationary policy.  Russia had invaded Ukraine.  Inflation was already nearing double-digits, thanks in part to supply chain disruption, but mostly to the multi-trillion dollar fiscal response to the pandemic. 
Adding fuel to the inflation fire, while the clean energy agenda was already curtailing energy supply, Congress responded to Russia with threats to place sanctions on Russian energy exports.  
That brings us to the current spike in gold.  Gold tends to be the global safe haven asset, where global capital flows in times of heightened geopolitical risk.  And gold is the historically favored inflation hedge.
That said, geopolitical risk and related uncertainty have become a constant, but these extreme moves in gold tend to be better aligned with episodes of overt fiscal profligacy (devaluation of the money in your pocket).  In this current case, perhaps the catalyst is the $7.3 trillion budget that Biden revealed early last month — an egregious 6% deficit spending plan in a economy that's growing at a 3% annual rate, with an already ballooning record debt.