Last week headline CPI inflation confirmed it was in line with market expectations at +2.4% year/year, down from +2.5% y/y in last month's reading. Inflation is continuing to fall in the current cycle, however we think the similarities between the current path and surge inflation of the 1970's are worth paying more attention to. In the 1970's when the Fed began an easing cycle with prices still too high, we saw reaccelerating inflation in subsequent waves causing even more macroeconomic problems. Precious metals have seen very bullish performance since the ECB confirmed a second consecutive rate cut last week, which we interpret as market participants coming to terms with the current easing cycle global central banks are engaged in and what that means for asset market performance in the coming quarters. The combination of lower interest rates (risks inflation reaccelerating), elevated levels of government debt & debt issuance, weaker USD, and historically (very) high asset market valuations presents a unique fundamental opportunity for precious metals to continue outperforming, as well as broader commodities joining the rally.
An opportunity for commodities to join the rally