Inflation continues to break records

US CPI data released yesterday showed an increase of 8.5% in the month of March. This is the fastest annual gain since December 1981.

The consumer price index, which measures a wide-ranging basket of goods and services, jumped 8.5% from a year ago on an unadjusted basis, above even the already elevated Dow Jones estimate for 8.4%.

Wall Street traders are looking at headline inflation and the impact it has on Gold as a hedge. Gold has been close to it’s all-time highs and continues to trade between $1,950 – $2,000:

With central banks signalling their plan to raise rates in an effort to combat inflation, the question we’re asking is: will it work and what’s going to be the impact of these increases?

The question regarding the impact of these can be observed by what has transpired in the past, which has indicated that rate hikes will lead to a recession:

History has often gone the other way. Since 1961, the Fed has launched nine full cycles of rate hikes to combat inflation. Recessions followed eight of those tries, according to research from the investment bank Piper Sandler.

The most recent market downturn due to the COVID-19 pandemic was one of the major catalysts for Gold and Precious Metals. Gold was a safe haven while the markets declined substantially:

 

Viewing this while keeping in mind a critical factor to consider i.e. the inflation of 8.5% we’re experiencing has been very high (well north of the 2% “target”), and may not be something central banks will counter effectively – unless they raise rates a lot higher than the expected 2-3% range most analysts predict over the next 12-24 months. We think it is very unlikely they will ever get above 3%, however this is still speculation and it does remain to be seen how they plan on approaching this.

In an interview with BNN Bloomberg, Bart Melek, commodity strategy at TD Securities, believes real interest have been too low for too long. He says given the inflation rate, he does not believe the Federal Reserve will be able to offset it with their rate hikes, and for this reason he does not expect these rate increases to upset Gold:

How to play this

A great way to play this rise in inflation is by buying junior gold / gold penny stocks. We are bullish on Etruscus Resources (CSE:ETR), which is trading at an astounding discount of 16.5 c. The company has $1M in the bank, and 2 world class assets both with the potential for significant deposits, yet remains the cheapest by market capitalization when compared with equivalent peers. We published our update report on Etruscus and had a taget at $1.50. This was back when Gold was trading at $1,750 – $1,800 range.

Etruscus Resources is sitting on a polymetallic deposit in the Golden Triangle containing Gold, Silver, Copper, Lead and Zinc in the Golden Triangle, and an option to acquire 100% of the a Gold property, in Newfoundland, which shares a border with $1.4 billion market cap Newfound Gold. The company recently completed rock sample and soil sample programs which resulted in 20 of the 60 rock samples returning assays over 1 g/t Au with 5 returning higher than 10 g/t Au, and with standout assays as high as 24.2 g/t Au. Our most recently published update report on Etruscus resulted in a market value of $1.50 using highly conservative estimates, and numerous assumptions of dilution. At current prices, ETR stands to gain 800%+ simply based on the degree of mineralization and location of their assets.