Gold and inflation...

One of the favorite indicators of inflation hawks has been gold prices. But as Scott Sumner points out, gold is a case unto itself.

Again, I don’t doubt that there are individual investors fooled by news stories of massive monetary base increases and huge deficits, who think that high inflation is just around the corner.  Not many average investors know that the same thing happened 15 years earlier in Japan, with no inflationary consequences.  But I believe the best point estimate of the market’s consensus inflation forecast comes from the CPI futures market, as well as the TIPS spreads in the T-bond market. [More]

As he explains in the cited post, demand from India and China, along with decreasing production means the global gold market is not dominated by inflation fears here in the US, but by much larger forces. In fact, my suspicion is as newly, albeit moderately,  affluent citizens in developing economies look for somewhere to stash extra moola, they stay pretty close to tangible wealth, not unlike our own forebears who bit on dollars to see if they were real gold.  It will be a while before they trust arcane investments like say REITs or swaps.

A more powerful mover of inflation in the US would be oil prices.  And speaking of which, the rally continues.

Benchmark oil settled up $1.19 at $89.19 a barrel on the New York Mercantile Exchange. It's the second time in less than a month that oil has reached the level where it was in the fall of 2008. There are widespread expectations that the price will hit $90 a barrel by year's end and head toward $100 a barrel by next spring when traders begin looking ahead to the summer driving season. [More]

Still, I think we have passed a tipping point on oil being able to dominate our economy. Higher prices would not have the effect we have previously endured as Americans are getting better at curtailing use on their own.  And it's not like we have full employment with people being paid to commute vast distances just to get the bodies.

Nonetheless, I'm filling every tank up right now.