From Transitory to Frustrating

Surprise – inflation is here to stay. Probably few people are surprised about this by now.

The Chairman of the Federal Reserve has admitted this week that inflation will accompany us higher and longer. His choice of words has now changed from transitory to frustrating. The U.S. Consumer Price Index (CPI) with which one would like to show us inflation figures has risen this year by over 5%.

But not only the U.S. has to fight rising inflation. The inflation rate in Germany has meanwhile reached 4.1%. Energy prices have risen by more than 14% and food by 5%. According to experts in Germany, the inflation rate is expected to increase even further.
The Germans who probably think of the specter of the Weimar Republic when they hear the word inflation is looking for security in real money. Physical gold purchases have increased by 35% this year.

The actual concept of inflation actually comes from monetary policy. When more currency units are created the currency is inflated. Rising consumer prices are the result of monetary inflation. That means when more currency units chase the same amount of goods, prices rise. Now you can think for yourself how inflation can be transitory when the money printing machine is running at full speed.

Even the central banks admit that fiat currencies are made to make their holders poor. The 2% target inflation that the central banks are issuing simply means that the purchasing power of fiat savers is falling by 2% per year and even more at the moment. Just go to the supermarket or look at the energy prices to see the extent.

When citizens start to worry about their purchasing power, they usually look for the safe haven of gold. Gold has been a store of value for over a thousand years and has outlasted every currency to date. Gold is the ultimate security and it is not for nothing that people on Wall Street say that they should put some gold in their portfolio and hope that this investment never pays off. Far from it, since the U.S. dollar was taken off the gold standard, the price has risen from $35 to over $2000.

Back in the Weimar Republic, people saw that the price of their real estate and valuables was rising inexorably. Many sold their valuables because they thought they were now rich. But what actually happened is that their monetary system went broke.

If you don’t already own physical gold, now might be the right time to think about it. Central banks put gold in their portfolios as a hedge, and if central banks do that, it certainly won’t hurt you. It probably won’t make you rich but it can save you.

Leave a Reply