It has become evident that higher consumer price inflation is anything but transitory.  Even if you fully trust the government’s CPI statistics, then price inflation is still running about two and a half times higher than the Fed’s target.  The Fed’s target is 2%, but the CPI is over 5%.

The Fed changed its 2% target earlier this year, at least sort of.  Jerome Powell says that the Fed is now looking for a 2% average.  The problem is that they never defined over what period of time.  Do we need an average for the last year, or for the last 20 years?

This is all going on while there are major widespread shortages being reported.  In a free market, most shortages are easily correctible with higher prices.  I think some companies have been resistant to raising prices too dramatically all at once.  So unless we see these shortages come to an end really soon, we are likely to see continuing rising prices at a significant rate.

We are in a boom time, but it is something of an artificial boom created by easy money and low interest rates.  That is part of the reason for the shortages.  There is an increase in demand, as some people feel wealthier than they actually are.  Real estate is booming.  Stocks are booming.  Bitcoin is booming.

But there is one notable thing that isn’t booming, and that is precious metals, or gold in particular.  Gold is supposed to be the number one hedge against inflation, yet it has not really boomed much as compared to other assets.

There isn’t an easy answer as to why except to say that there just isn’t a mania in gold right now.  People are trying to get into real estate so that they can have a nice place to live, hence the real estate bubble.  Some are also trying to make money off of it.

In terms of other investing (or speculating), most people are trying to make a quick buck.  I don’t think most people jumping into Bitcoin are doing so because they plan to use it as a form of money one day.  They are trying to make a quick and easy profit in dollars.

The same could be said more and more every day about stocks.  Sure, there are some people just buying and holding for the long term.  There is also a new generation of younger adults with a Robinhood account or something similar who are trying to make a quick buck.  It is easier to make a quick 10% by buying Tesla than it is buying gold.

There is something of an irrational mania going on right now, and it just so happens that gold isn’t part of that mania.  In fact, it is one of the few assets that isn’t part of the mania.

Another important point to consider is that price inflation, at least according to the government’s CPI numbers, is running at just over 5% year-over-year.  We aren’t like the 1970s yet.  Maybe we will be there in 2022, but we haven’t hit double digits yet.

While I think many people realize that slightly higher price inflation has a high likelihood in the near future, I don’t think most people believe it is a major threat.  They don’t necessarily think it will go to 10% or more for any significant period of time.  Even the “expert” financial analysts think the Fed will just step in and hike rates if necessary.

And maybe they are right.  Or maybe the Fed will lose control and be faced with out-of-control price inflation or a major tightening that will crash the entire economy.  I can’t be certain which one they will choose.

Right now, the market is telling us that price inflation is not a significant worry.  The bond market is telling us that with very low yields, and the gold market is telling us that with only mild price increases.

On the other hand, sometimes the market just gets things wrong.  That’s not exactly correct, as the last price is the true price, and it is the market price.  But the market is wrong in the sense that everything is distorted, which is largely due to the Fed’s easy money and artificially low interest rates.

Even though gold has performed relatively poorly compared to most other assets, it is still around $1,800 per ounce.  If you had bought 20 years ago, you would have done well.  Admittedly, you would have done even better had you bought the Nasdaq in March 2009 and held it until now.

I think it is hard to go wrong buying gold and gold-related investments right now if you aren’t already heavy in them.  If we have a bad recession, then the price could go down.  But the prices in stocks and real estate are going to crash hard, and the drop in the gold price will look mild in comparison.

If the boom continues for a wild, then expect price inflation to continue at its current pace or even higher.  At some point, this is going to spook some people, and some investors are going to hedge their bets with some gold.

You can’t take away thousands of years of history just because some people are trying to make a quick buck on their Robinhood account.  There is eventually a reversion to the mean.  There is eventually a return of fundamentals.

There is going to be an epic crash, or there is going to be a prolonged period of high price inflation.  Maybe there will be both.  At some point, gold is going to join the party, or else the party is going to stop.  Maybe gold will have its own party down the road.