Gold Market Dislocations Spark High Drama in Asia, Europe, and U.S.

Well, it's getting harder and harder to pretend the inflation problem isn't still a big problem.

Last month, the markets and the mainstream media threw a party when the CPI data came in "cooler than expected." However, the actual CPI data -- as revised upwards this week -- told a different story. And the January inflation data was even more damning.

Prices rose 3 percent last month on an annual basis, the fourth straight increase in the headline CPI number. The CPI has crept up from 2.4 percent in September, 2.6 percent in October, 2.7 percent in November, and 2.9 percent in December.

The last time the CPI charted 3 percent was June 2024, and it was 3.1 percent in June 2023.

The "good news" last month was on the core inflation front. But that was short-lived. Coming off the encouraging 0.2 percent increase in December, core CPI stripping out more volatile food and energy prices surged by 0.4 percent in January. That pushed the annual core CPI to back up 3.3 percent. Core CPI has been mired in this range since last July.

Overall, the CPI data tells the same story it's been telling for months: price inflation is stubbornly sticky.

And this time, the pundits and politicians can't even gaslight you by claiming it was a good report because the numbers were "better than expected." All of the January numbers were worse than forecast.

You don't have to be an economist to understand that all of these numbers remain far above the Federal Reserve's mythical 2 percent target.

And of course, the CPI doesn’t tell the entire story of inflation. The U.S. government revised the CPI formula in the 1990s so that it understated the actual rise in prices. Based on the formula used in the 1970s, CPI is closer to double the official numbers. So, if the BLS was using the old formula, we’re looking at CPI closer to 6 percent. And using an honest formula, it would probably be worse than that.

Looking more closely at the data, we find that you paid more for virtually everything in January. The food index rose 0.5 percent month-on-month. Energy rose by 1.1 percent. Shelter was up 0.4 percent. Service costs spiked by 0.5 percent. The only category that declined was apparel.

The bottom line is that even the official statistics reveal that inflation is still a big problem -- and it's even bigger in real life, as most Americans already know full well.

In other news this week, South Korea's mint has temporarily suspended the sale of gold bars as the rapid movement of physical gold and silver to the U.S. continues to send ripples through the precious metals markets.

As Bloomberg put it, this adds to signs of "widespread tightness across markets for physical precious metals."

In its announcement, the Korea Minting and Security Printing Corp. said it faced supply sourcing problems and was struggling to manage demand for gold bars.

As we've reported several times over the past month, the prices of gold and silver futures traded on the COMEX have surged above the spot price of gold in the London market. Mainstream analysts exclusively blame the dynamic on the threat of tariffs pushing the futures price of gold (and silver) higher in New York, but there could be a more fundamental issue at play... the fact that there is a lot more paper gold than physical metal.

Regardless of the reason, the movement of the yellow metal has driven record outflows of gold from London vaults, and it appears to be impacting supply in Asia as well. According to a Reuters article earlier this month, "Global bullion banks are flying gold into the United States from trading hubs catering to Asian consumers, including Dubai and Hong Kong, to capitalize on the unusually high premium that U.S. gold futures are enjoying over spot prices."

Even though the price of gold surged in recent weeks and set new price records above $2,900 per ounce, the premium on the COMEX has created an arbitrage opportunity that big institutions capable of quickly moving metal between trading hubs can take advantage of.

This issue here is obvious. As metal flows out of London into New York, the gold and silver holdings across the pond could eventually become severely depleted. As we reported a couple of weeks ago, this dynamic is creating significant uncertainty in both the gold and silver markets.

As for the specifics on the weekly price action here, gold – which was rising quickly earlier today and pushing up towards $2,950 – has fallen back sharply now and currently comes in at $2,905. Despite the pullback here today, the yellow metal is still up 1.1% since last Friday’s close and appears headed for a 7th straight weekly advance.

As for silver… like gold, it too has pulled back from earlier highs on the day that saw it push above $33 an ounce. The white metal currently checks in at $32.68, good for a weekly gain of 2.1% as of this Friday morning recording.

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