In the past, we would see investors flocking to GOLD if there was fear of a market collapse.
As you can see in the following chart, US financial conditions is at a local low (not surprising given that The Fed is printing money at a 24.24% year-over-year basis). Around the Covid breakout and Fed (over) reaction, Gold and Silver jumped and Gold subsided only to recently rebound.
But is the explosive growth in cryptocurrency Ethereum a result of fear? Fear that overly easy financial conditions and explosive money printing will cause a bubble that will burst.
The way that The Federal government measures inflation shows that there is little impact from the dramatic increase in M2 money supply. US Personal Consumption Expenditure Core Price Index YoY is only at 1.41%.
Yet a number of commodities and housing have increased along with the massive expansion of Federal Reserve M2 money stock. For example, used cars (Manheim US used vehicle value index) has increased 36% since December 31, 2019. Lumber has increased 149% over the same time period and copper has increased 43%. Home price growth has increased to 12% YoY, up from 6.6% for December 2019.
Yet the US Personal Consumption Expenditure Core Price Index YoY is only 1.41%.
Food? Up 70% since March 2019.
Since April, investors are seeking protection in the form of gold and silver.
Of course, there are droughts and weather events that impact food prices. And growing economies can drive up commodity prices. Then again, markets may simply be drunk on Fed money printing.
Chairman Powell, tell me why The Federal Reserve is buying so much agency mortgage-backed securities (MBS) while there is a dearth of available housing inventory? Especially when home prices are growing at 12.2% year-over-year?
Mortgage rates were already falling starting in December 2018, but started rising again in 2021 …until March when they began falling again.
Is this a bubble-preservation strategy? Or just ..?