Serious Inflation Problem if Gold Price Breaks $2k?

EDITOR NOTE: Here’s a tale about two animals: the canary and the tiger. Gold’s the canary in the proverbial coal mine. Perhaps it was once. As inflationary data began pouring in at record levels, the canary hasn’t budged. What happened? And what will it mean once it finally passes? Inflation is the tiger. Trying to control inflation’s spread, as the expert below describes, is like trying to catch a tiger by the tail. The critical price level we're looking at is $2,000 an ounce. If gold’s barely moving at the current pace of inflation’s surge, then a move above $2,000--whether it leads or follows inflation--signals a serious inflation problem and economic hazard. The Fed may be overly optimistic about its capacity to keep a lid on the rise in prices. Many global leaders in government and commerce are beginning to lose confidence in the Fed’s assurances. As an American, the decision you make to either hedge inflation by purchasing non-CUSIP gold or silver or to remain unhedged may define your wealth prospects in the coming years. Whatever you decide, be very certain it’s truly what you want to do.

(Kitco News) - Inflation concerns are escalating due to loose monetary policies and unprecedented stimulus, with June CPI data rising at the fastest level since 2008. However, this has not been reflected in the price of gold, with the precious metal not hitting the $1,900 an ounce level since January.

Mark Skousen, an award-winning economist, warns that if gold were to breach the $2,000 an ounce level that would indicate that inflation is a very serious problem.

"Gold tends to be a leading indicator of inflation, and gold is moving up, but it hasn't broken above the $1,900 level. But if it does break that level and goes from $2,000 to $2,100, that suggests a very serious inflation problem," Skousen told Michelle Makori, editor-in-chief of Kitco News, on the sidelines of the Freedom Fest 2021 conference.

Skousen is the editor-in-chief of Forecasts & Strategies and is currently on the faculty of Chapman University, where he is a Presidential Fellow.

"I think Powell is a little too optimistic about the problem of inflation. It's here to stay and it's going to last for a long time," said Skousen, who is a best-selling author, and a presidential fellow at Chapman University.

"Trying to control inflation is like trying to catch a tiger by the tail," said Skousen, "It can easily get out of control as it did in the seventies. It's a very dangerous game, I'm really concerned that the government is acting irresponsibly at this point.”

IInflation is on the rise while the economy has been growing. The Gross Domestic Product (GDP) for the second quarter, out later this week, is expected to show another growth spurt of 9.2%, according to consensus estimates. However, Skousen is unsure how long this economic acceleration will continue because of President Biden's plan to increase taxes on individuals and corporations.

"We're experiencing a booming recovery, but how long it lasts depends on the Biden Administration's proposed tax increases and excessive regulation, which will send us back into a stagnating economy. I am hoping that does not get through Congress," Skousen said.

He discussed the current issues facing many restaurants and businesses. They are having trouble finding workers, resulting in a labor shortage. The argument is that employees would rather stay home than seek work because they are receiving higher unemployment benefits than wages.

"The Democrats could not get a $15 minimum wage passed through the Senate. This is their way of getting a $15 minimum wage," Skousen explained. "But it does come at a cost because companies are raising their prices to cover the increase in their labor expenses. This is all inflationary."

Free market enterprise is what has helped us out of this pandemic mess and the government needs to stay out, Skousen said.

"The government-backed off of regulations and look what free enterprise did. Small businesses are coming back, restaurants are coming back to life, and students are going back to school. It's encouraging that the GDP is expanding rapidly," Skousen continued. "I think the government needs to back away. But they have left a terrible legacy with excessive debt, and the problem is that we are going to have to pay back that debt."

Original post from Kitco