Blog

Inflation has been the topic of much financial discussion in recent months. The high pace of inflation, clocked at 40-year highs, has made everything more expensive. From gasoline to groceries to shelter to clothing, the prices of everyday goods and services have continued to rise.

The strong bout of inflation has given the Federal Reserve reason to hike interest rates aggressively in recent months. The Fed has already raised rates by 75-basis points not once, not twice, but three times. The next hike to come may also include a 75-point raise and could possibly even include a hike of a full 100 basis points.

Some of the data in recent months seemingly indicated that perhaps inflation had finally found a top. A slowdown in jobs, manufacturing, real estate or other key areas of the economy could potentially point to a slowdown for price pressures. The possibility of a slowdown in prices has kept markets calmer than they may otherwise have been. Hopes for a Fed reversal have also remained fairly consistent. Some still hope, and believe, that the Fed is likely to take a pause on its rate hikes and possibly even begin to lower rates again. While this is always “possible,” it is highly unlikely at this point in time.

Recent inflationary data showed that price pressures have really gone nowhere. This past week, the latest CPI data showed that prices were 8.2% higher for September than the year prior. Perhaps of even greater concern is the core inflation rate. Core prices were 6.6% higher than the year before and were the highest recorded in four decades. The core inflation rate is the more stable reading of the two, and a higher core rate points to trouble ahead.

Central bankers have already raised rates by 300-basis points this year. With a hot core inflation reading still in play, however, the Fed may have significant work left to be done. Inflation may not only have not peaked as of yet, but could still increase further in the next 12-18 months. If prices continue to rise, the Fed may have little choice but to keep hiking interest rates aggressively. This may not only slowdown the economy, but could lead it straight into a major recession.

The gold market has been under some pressure in recent weeks and may continue to see downside pressure if it remains below some key technical levels. The king dollar may keep gold prices from making a sustained move higher as long as it keeps rising. It may continue to rise as long as the expectation for higher rates remains firmly in place. The gold market may remain sideways to lower during that time as well. Once the Fed does signal that rates are high enough or likely to reverse, the gold market could see a sustained breakout that could take it back to all-time highs or beyond very quickly.