Oil and Gold: Remembrance of Things Past

18 Sep

Oil and Gold: Remembrance of Things Past

None of our clients or friends will be surprised to learn that price inflation in August took its biggest jump in over a year.  

The Wall Street Journal:

The consumer-price index rose 0.6% in August from the prior month, the Labor Department said Wednesday. More than half of the increase was due to higher gasoline prices. So-called core prices, which exclude volatile food and energy items, rose by 0.3% last month after even lower readings in June and July.  

We warned that inflation was about to tick up, writing last month: 

Gasoline prices have been climbing in August.  That will show up in the next CPI report next month with higher prices factored in.  

Furthermore, low inflation months (July ‘22 – 0.0 percent; August ’22 – 0.2 percent) that have been holding the 12-month numbers lower the last couple of months, will be dropping out of the 12-month average, with mostly higher monthly numbers replacing them.  

So, there are still higher inflation numbers headed our way.   And now the problem is compounded.  After all, Biden took a break from stumbling up the stairs of Air Force 1 to drain America’s strategic petroleum reserves.

So those emergency reserves will have to be replenished at higher prices.

It should go without saying that rising energy prices are exactly like a tax on American households and businesses.  

Crude oil is about $90 a barrel.  Some observers, among them JPMorgan Chase CEO Jamie Dimon, think we may be headed to $150 a barrel.  It all calls to mind the Stagflation Decade.  Oil prices quadrupled in 1973 and nearly tripled in 1980.  

The Keynesian and Modern Monetary Theory economists who have been in charge of monetary policy in this country for most of a century have tried to blame rising oil prices for the Stagflation Decade.  The truth is quite the opposite.  OPEC producers clearly warned in advance that selling their appreciating oil, recovered from the earth at great effort and expense, for US dollars that were depreciating and could be reproduced endlessly at no meaningful cost, made little sense.  If the US dollar kept losing purchasing power, they warned, it would certainly lead to higher oil prices.  

Indeed, it did.  Then the vicious cycle got underway in which the Treasury tried to cushion the effect of higher energy prices by printing money to make the OPEC price increases illusory in real terms.

Of course, you know what also performed profitably in the Stagflation Decade?  Gold and silver.

We’ll leave you with two thoughts.  First, a suggestion is that you update your gold and silver holdings for what is headed our way.  And secondly, a line from comedian Steven Wright:

“Right now I’m having amnesia and déjà vu at the same time. I think I’ve forgotten this before.”