Inflation: Bad for the Fed, Great for Hard Assets

December 8, 2021

At the outset of the COVID panic last year, the stock market fell more than -30%. Having already slashed interest rates to 0%, the Federal Reserve announced it would begin buying an unlimited quantity of corporate debt and government bonds…These actions proved incredibly effective- The S&P has gained +116% to date.
However, these drastic measures were not without consequence. For those paying close attention to the U.S. central bank, this constituted a recipe for monetary inflation.
The warning bells began sounding in 2021, and since then, monetary inflation has become the Fed’s largest challenge and a growing source of unrest for the American public.
LikeFolio data shows that fear, uncertainty, and concern about inflation has risen more than +400% YTD and +78% in the past quarter (90d MA).

Inflation has become an unavoidable problem for the Fed — Prevailing economic theory dictates that they respond with aggressive monetary policy, like raising interest rates and easing back on asset purchases. Unfortunately, the massive amount of outstanding debt in the U.S. financial system makes this an incredibly unattractive proposition…The pain inflicted would be massive, and the outcomes unpredictable.
In the face of such uncertainty, investors are putting their faith in hard assets, as evidenced by the recent boom seen in real estatecommodities, and even used vehicles.
One oft-overlooked class of hard assets, Precious metals, have been relatively dormant in 2021. But, their status as “industrial commodities” could be challenged as inflation fears continue to rise.
Consumer Mentions of purchasing or investing in precious metals are still rising: +34% YoY and +68% vs. 2019 on a 90-day moving average.

Silver Coin Demand has followed a similar uptrend, with a higher degree of near-term growth: +17% QoQ and +52% YoY on a 90-day moving average. As an asset, silver is historically undervalued — The price remains more than -50% below its (non-inflation adjusted!) all-time high of $50 an ounce, while its industrial demand increases with each passing year.

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