When the latest CPI number came in hot at 0.4% for March and the annual core CPI inflation rate held at 3.8%, Betsey Stevenson, professor of economics at the University of Michigan appearing on CNBC’s Squawk Box said nonchalantly “Three percent inflation is no big deal.” The comment got a rise out of co-host Becky Quick who reminded the professor that the three percent was adding on to the already higher prices consumers continue to suffer with.
To Ms. Quick’s point, the latest Grant’s Interest Rate Observer cites once-upon-a-time Fed Chair William McChesney Martin who said (approximately) “the purchasing power lost to inflation is never regained.” Grant’s cites a paper entitled “The Cost of Money Is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly,” published by the National Bureau of Economic Research. Cutting to the chase, CPI, the authors write, if interest paid is considered (as it was prior to1983 in the government’s price index) “increases from 3% to 9% in November.” Presumably the number would be no lower for a month ago.
While Professor Stevenson is sanguine about prices while pontificating from her ivory tower. Thirty-something-year-old gold buyer Joe Roselli told the Wall Street Journal, “I’m protecting against a situation where there is hyperinflation. I want something physical that I can hold.”
While us more seasoned gold bugs still feel alone, Katherine Hamilton wrote in the WSJ, “Americans can’t get enough gold. Costco, which started offering gold bars last year online and in a few stores, has been selling out within hours.”
Ms. Hamilton reports that it’s the Millennial generation that’s taking a shine to the yellow metal. “The average millennial allocates 17% of their investments to gold, including exchange-traded funds, while Gen X and baby boomers invest 10% of their portfolio in the metal,” Hamilton wrote early this month. In China, 59% of gold purchases are made by those 25-to-34-years old.
Costco sold $100 million in gold bars in 2023 and also offers silver coins. Precious metal sales helped drive 18% year-over-year growth in e-commerce sales during its most recent quarter, which ended in February, Costco said.
Costco sales notwithstanding, what’s pushed the gold price upward is buying from China. “Exceptional strong gold demand from both the Chinese central bank and [China’s] private sector has been driving up the gold price over the past two years, by which they have taken over control over the gold price from the West,” contends Jan Nieuwenhuijs, analyst at Gainesville Coins cited in Grant’s. “The PBoC bought a record 735 tonnes of gold in 2023, of which about two thirds were purchased covertly. In addition, the private sector net-imported 1,411 tonnes in 2023, and a whopping 228 tonnes just in January of 2024.”
Through March the People’s Bank of China had purchased gold for 17 consecutive months. Also buying are central banks in Singapore and Poland. However stateside, the SPDR Gold ETF (GLD) is not buying. Despite record high prices, the amount of bullion held by the world’s largest yellow metal ETF has decreased 5.3% year to date and 16% from the start of 2022, reports Grant’s.
Young people are placing their faith in Costco instead of Wall Street. “I trust Costco,” Jared Nagano told the WSJ. “And it’s such a good deal,” referring to the low (or less) premiums to the spot price for the one ounce bars sold primarily online from Swiss-based refiner MKS PAMP or South Africa’s Rand Refinery.
“If you want the Costco bars, you’ve got to track the truck,” Nagano said he was told by a store employee. Members of the big-box retailer maintain constant reconnaissance as to when stores are restocking and report shipment status in online forums of Costco members.
This sort of obsessive interest in the ancient metal hardly seems possible to this student of Murray Rothbard’s who remembers him lecturing on the gold standard at UNLV over 30 years ago. Today’s investment world seems only concerned with Bitcoin and artificial intelligence. But, as Grant’s writes so eloquently in its April 12th edition, “We are customarily and proverbially bullish. However, your editor wishes to acknowledge that gold yields not one basis point more than Dogecoin, has broken many a bull’s heart and remains the same nonregenerative metal at $2,300 an ounce as it was at $300 an ounce. What moves the price is not the fact of monetary mismanagement but the perception of that common shortcoming.”
The incessant increase in prices is proof-positive that something is amiss with monetary management. The interest in gold merely reflects that more people are catching on.
