USA: Inflation, gold and bitcoin

USA Inflation gold and bitcoin

Inflation exploded in the United States. For investors, gold raises doubts and many think that Bitcoin can be a haven of value.

Inflation exploded in the United States. The April measurement confirmed Wall Street fears and showed prices soaring. Investors are looking for a shelter. The gold raises doubts and many think Bitcoin can be a refuge value. In this note, I tell you everything.

On Wednesday of last week the inflation data was released. The consumer price index (known as “CPI” for its acronym in English) rose 0.8% in April, compared to the 0.2% expected by the market.

If we annualize the inflation of the last three months in the US, it gives us 7%. And it is accelerating.

Here below we can see the evolution of the monthly CPI (Consumer Price Index) during this year:

After a strong injection of money by the Federal Reserve, it was expected to begin to see the effects on inflation after twelve months.

Precisely, what we are seeing now is the tail of the monetary policy that was put into effect in March of last year.

But this is not all.

Some time ago I talked about a trick that the US government uses to calculate inflation: a mechanism called “hedonic quality adjustment” that makes it possible to report numbers much smaller than the true ones.

Prices can increase mainly for two reasons: due to the loss of purchasing power of money or due to improvements in the quality of goods and services.

In simple words: what the government does is eliminate price increases due to quality improvements from the CPI calculation.

I am going to give you a concrete example. The increase in car prices due to the incorporation of air conditioning is a case of “hedonic quality adjustment” and, consequently, it is not considered in the calculation of inflation.

But imagine you wanting to buy a new car today without air conditioning. Impossible task. All models now come with that upgrade. The consumer has to buy the goods with those built-in improvements.

Ultimately, this vastly underestimates true inflation. The price index reflects only a portion of the increase. And still, the numbers are very worrying.

Everything indicates that this is only the beginning and that inflation in the US will continue to accelerate.

In this situation, logically, investors want to flee in search of a haven of value. The natural choice is gold. However, many people have doubts because they think that if interest rates rise (something to be expected with rising inflation) this will be negative for precious metals.

In this regard, what really matters is what happens to the real interest rate, not the nominal one.

What we need to watch and follow closely is what happens to inflation and the 10-year implicit rate.

If inflation rises faster than interest rates, that’s good for metals.

On the other hand, I would like to add a comment about cryptocurrencies, and their possible function as a haven of value.

Crypto is a revolutionary phenomenon that has many disruptive innovations behind it. This has led to a story that has generated a speculative mania.

Manias always end in a violent way. It remains to be seen if Elon Musk’s decision to stop accepting Bitcoin as a means of payment to buy his cars could mark a breaking point.

Today, the trend of Bitcoin seems to be at risk. Its price fell below the 50-day moving average and is trading at February levels. Ethereum’s for now remains and seems more solid.

However, anyone who believes that buying Bitcoin is buying defense against inflation may be making a serious mistake. It is an extremely explosive asset and its fate will be marked more by the continuation or not of the mania than by the rise in prices in the US.

If you are interested in knowing how you can protect yourself against inflation in the US, I have something very special for you. I prepared a report with 7 company stocks that offer the best protection for high inflation contexts.