Powell is just stalling for time, gold and silver look attractive as inflation spiral starts – Degussa

Physical gold and silver will continue to be attractive assets as investors look to protect their wealth and purchasing power as one precious metals firm sees signs of an inflation spiral.

In his latest market report, Thorsten Polleit, chief economist of Degussa, said not only are consumer prices at multi-decade highs around the world but growing economic data points to elevated inflation pressure for years to come.

One sector Polleit said he is watching that highlights the growing inflationary trend is the housing market. This year U.S. home prices are up nearly 20%. Over in Europe, German home prices are up more than 13%.

Polleit said that rising home prices are good indications that sustained inflation across the board is "rearing its ugly head."

He added that the threat now is that inflation spirals out of control.

"If people expect goods price inflation to rise and remain high in the future, they will adjust their wage, rental and credit agreements. For instance, employees will demand higher wages, property owners will ask for more money for the right to occupy a home, and lenders will increase their lending rates," he said.

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Polleit noted that so far, central bankers worldwide have been able to talk down the rising inflation threat. Earlier this week, Federal Reserve Chair Jerome Powell said in testimony before Congress that the central bank will be discussing speeding up the process to reduce the amount of bonds they purchase every month.

He also said it is time to "retire" the world "transitory." While Powell is striking a more hawkish tone on monetary policy, Polleit said that he is still maintaining dovish policies.

"Clearly, there is no desire to change the course immediately. What seems to be intended is that people expect the Fed to do something about the inflation at some point in the more or less far future and that this will suffice to keep them sitting still," he said. "So far, it seems to be working, as central banks are getting away with it. And while the money supply continues to expand at elevated rates, goods price inflation will likely remain high in the years to come, and people will probably get used to it – as they have become used to extremely low interest rates."

Polleit said that central banks have no desire to stop the growing inflation threat.

"The higher inflation has become, and the higher inflation expectations have risen, the more restrictive monetary policy must be," he said. "Unfortunately, central banks shy away from abandoning their inflationary policy course, fearing that stepping on the brakes would plunge economies into recession and crash financial markets."

The growing risk as central banks stall for time is that consumers get punished, Polleit said. He added that inflation would ultimately create winners and losers in the global economy.

"Owners of assets, which increase in price, benefit while the holders of money suffer: They can buy fewer assets for their money," he said.

Polleit said investors need to start looking at holding some physical gold and silver in their portfolios to protect themselves.

"For long-term oriented investors, holding physical gold and silver as part of their liquid portfolio should be particularly worthwhile, as in the coming years, especially when purchased at current prices – which we consider to be relatively cheap, appearing to promise a substantial upwards potential, they can be expected to be both risk-reducing and return-enhancing," he said.

 

By Neils Christensen

For Kitco News

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