Higher Than Expected CPI Dings Gold

The Market Gage - Gold is Elemental

Higher interest rates are on the minds of all traders and investors this morning as CPI figures indicate inflation is on the rise. When the number was released at 8:30 this morning, equity computer programs immediately took over.

The equities positive bias quickly disappeared as we saw the Dow move 300 points lower in a matter of a minute or two. The price of Gold also took a hit dropping almost 9 dollars when the number was released.

The January CPI figure year over year number came in at 2.1 percent, as the Street was expecting a number of 1.9 percent. We all know that the Fed target rate is two percent and this number gives the hawks on the Fed board more ammunition to raise rates more aggressively in the coming year.

The price of gold has recovered somewhat after the initial shock and I expect we’ve seen the lows for the day already.

The price of silver reacted in tandem with the price of gold as expected when the number was released and here too I expect the lows have been established for the session.

Also as expected, Ten-Year Treasury yields along with the dollar are trading higher this morning.

Focus On Infrastructure

It might just be a good idea to buy yourself a comfortable bicycle with a big basket to replace your gas-powered vehicle.

On Monday, the President introduced his infrastructure plan and promised to solve the crisis by attracting large amounts of private money to bail us out.

There is a lot of money around the world looking for solid investments. Investor money can build new bridges or repair old ones, but at what cost to the taxpayer? The President’s infrastructure plan will benefit America’s industries and take the onus off the Federal government.

Wall Street likes the plan, witnessed by companies involved in those types of industries traded higher after the budget was presented.

On its face, this seems like good news for the public. Our current infrastructure crisis arose largely because of the unwillingness of our representatives in both houses to raise fees and taxes to meet the costs of maintaining our infrastructure.

Keeping taxes as they were decades ago has given us plenty of potholes, not to mention thousands of structurally deficient bridges and tunnels. Private investors might help prevent such a crisis from happening again.

But remember, the difference between maintaining infrastructure through taxes or through private investment, is that the private sector insists on getting its money back over time, along with interest and some profit. Repayment is an obligation, and profit is the incentive that brings money into the market. Both repayment and profit must come from somewhere, and that somewhere is: “THE TAXPAYER.” Investors will demand that we pay costs that we’ve been able to dodge for many years.

So don’t be surprised when you are asked to cough up more fees and tolls. Private money will flow to infrastructure for which access can be restricted to those who pay for it IE; toll roads, bridges, water supply systems and airports. Facilities like airports or bus terminals that do not generate enough revenue, but can benefit from private investment.

If this plan comes to fruition, one can expect costs to rise exponentially, from concession stands in airports and Bus terminals to much higher tolls on bridges and tunnels. And one can be sure there will be new tolls on every highway that has no tolls at the moment.

Let me give you an example of some costs in the Northeast’s Tristate region. Currently, it costs $17.00 to go over New York’s Verrazano bridge. How much more are folks willing to pay to go from one of the boroughs to venture into Manhattan? For example, let’s say you want to take your family to see a Broadway play and you live in either Staten Island or New Jersey. Here are your out of pocket costs:

  • New Jersey crossings: $ 16.00
  • Verrazano Bridge: $ 17.00
  • Brooklyn Battery Tunnel: $ 8.50 each way
  • Parking: $ 50 average in Midtown
  • Broadway tickets for a family of four (middle of the road seats): $ 300
  • Oh you want to eat too?

That’s $400 before you even put a dirty water frank in your mouth.

How many of you out there have mortgage payments that are lower?

The point I’m trying to convey is, how in the world will this plan NOT add to the country’s debt and be extremely inflationary?

Oh, by the way, what happened to healthcare reform? Remember everyone? We haven’t even got started on this upcoming disaster.

As I said after they passed a totally unnecessary corporate tax bill, in a few years we as a country will at the end of our rope.

Gold anyone?

Have a wonderful Wednesday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.