Diamond News

I am sure you remember the lead up to Q1 2016. The US economy and stock market were transitioning from a Goldilocks environment and narrowly avoiding a bear market while the rest of the world was still battling deflation. Precious metals and commodities were in the dumper and try though US and global central banks might, they seemed to fail to woo the inflation genie out of its bottle at every turn.

Then came December of 2015 when gold and silver made bottoms followed by the gold miners in January of 2016. Then by the time February had come and gone the whole raft of other inflatables (commodities and stocks) had bottomed and begun to set sail.

As I listened to Mr. Powell speak about inflation yesterday my mind wandered back to Q1 2016 as I thought about the Fed trying to manage inflation at or around 2%. I also thought about how inflation tends to lift boats, not sink them. At least that is what it does in its earlier stages, in its manageable stages.

The balls out post-crisis inflation begun by Ben Bernanke was a massive market input and I suspect we have not yet seen its full effects – other than in US stock prices thus far. So dialing back to Q1 2016 let’s look at a few pictures, beginning with the Fed’s 10 year breakeven inflation rate, which bottomed… you guessed it, in Q1 2016. That means that ‘deflation expectations’ topped at that time.

A month or so earlier gold had made its low, amid deflation’s last gasp. I often talk about how gold is not about inflation and that deserves a qualification. Gold is not only or even primarily about inflation, especially when the...

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