Government spending, quantitative easing (the printing press is on at the federal reserve), and massive amounts of fiscal stimulus is flooding the US economy. Most economist believe that these actions are going to result in inflationary pressures in the near term. Hence the current price of gold.
BUT, the US unemployment rate is nearing 10%, the capacity utilization rate is at 65% (85% would suggest manufacturing activity is at full capacity), and the CPI rate is at about -.05%. More importantly, the consumer confidence survey out today actually decreased from August to September. Folks, the risk of inflation at this time or in the near future is extremely low and pricing pressures are non-existent.
Therefore, is the huge run-up in gold prices accurately predicting the threat of inflation? Based on the actions of the Fed and the US Government, probably. Though, if you observe what is actually going within the economy, inflation is not coming anytime soon, and gold prices are more than likely going decrease and correct to a more normal level over the next several months.
Ben Bernanke and the Federal Reserve see it the same way. Hopefully, job creation and capacity utilization increases more rapidly over the next several months, because some inflation is good for the economy. If consumer demand continues to falter, which makes up 70% of the overall economy, inflation will NOT be an issue. The bigger risk will be another recession and stock market plunging into another bear market.
By David A. Mascio
