Interest Rates Why Investors Should Listen to The Fed

Sean Brazney: Hello, my name is Sean Brazney, Sales Director for Monex Deposit Company. I get the great pleasure of being here today with CPM Group, the Managing Partner and Founder of CPM Group, and one of the many analysts over there, Jeffrey Christian. Thank you for being with us today, Jeffrey.

Jeffrey Christian It’s always a pleasure.

Sean Brazney: Of course, we’re here in regards to our newest report for 2024, Precious Metals in a Rising Storm. Topic today is going to be inflation. Today is a timely topic with the CPI numbers that came out today and came out on the open, and we had hotter than expected inflation for January, and we see gold drop by over $25. Often, we hear gold as an inflation hedge, and of course, inflation comes out in the headlines, and gold goes down. It’s a head scratcher for some people looking at gold. Is there a way that maybe you can put that into perspective and for somebody that’s really looking to maybe buy gold, maybe for the first time, why that may be happening?

Jeffrey Christian: I think you have to understand, gold is a good inflation hedge. It really is a good hedge against long-term inflation, but it doesn’t move tick for tick with prices, consumer prices, producer prices, or anything else. So, you can say it’s a good inflation hedge, but what we’ve got to do is you’ve got to look at what exactly is happening right now. The first point I’d make is gold fell $25. Silver dropped down to $22.05. Platinum, palladium, copper– the Dow Jones fell 400 points. All financial assets and commodities were selling off, because the financial markets were disappointed by the inflation information, and they shouldn’t have been, but they seem to be very slow to learn. The Fed has been talking about the fact that inflation actually is still an issue—and it is. Today’s inflation figures actually underspeak about the inflationary pressures. If you look at it, yeah, it was headline inflation was 3.1% year over year. Core inflation, if you take out energy and food, was 3.9%, because if you look at what happened, headline inflation, oil prices and natural gas prices have been lower, less volatile, they’ve been falling for 12 months now and that has taken the headline inflation, which includes food and energy, down faster than the core inflation that we really live by day by day. If you break down what was happening in January, you see that oil prices and gasoline prices were off. Oil prices were off like 5%. Fuel oil was off like 15%. Natural gas was off 18%, and that dragged down the headline inflation, and it made it look good, better than it is, but if you look at inflation excluding energy and food, you had a higher inflation, 3.9%, almost 4%, double what the Fed would like to see, and you had two very nasty pluses. One was a 6% increase in what they call shelter, which is rent, the price of housing, rent, the cost of buying a house, and the monthly mortgage payments and other associated costs of owning a home, and transportation services, which were up 9 and 1/2%. Those are two very important things. I mean, housing is the biggest cost expenditure that most households have month to month and it was up 6%, and that transportation at 9 and 1/2% is very worrisome, because it’s critical for people to go to school, go to work, go shopping, and everything else. So, the Fed has been looking at the disaggregated inflation and it has been saying, you’ve got to be worried here. You’ve got to be worried here. We’re not out of the inflation shadows. Yeah, we’ve gone from headline of 9% a year and 1/2 ago to a headline of 3.1%. but there’s still a lot of inflationary pressures that we have to get under control here before we’re comfortable, and that means that interest rates are going to stay higher longer than what the market has been praying for. The Fed has been saying the market is underpricing interest rates, that the market has been anticipating interest rate declines sooner than the Fed is likely to make them. And today’s inflation figures say, yes, that’s true. So, the price fell not because inflation was higher than people expected, but because the higher-than-expected inflation suggests that interest rates are going to stay higher longer.

Sean Brazney: You said, listen to the man, the man being the Fed. You’ve been spot on with that for a while. Again, we appreciate all your time today, Jeffrey. Want to remind our viewers to call Monex today, talk to an account representative, and get your newest report for 2024, Precious Metals in a Rising Storm. Thank you again for your time, Jeffrey.