Raise your hand if you thought things were actually going to change in light of the July Federal Open Market Committee inflation meeting? Just so you know, I kept my hand down.
Hopefully, you did too.
At 2 o’clock, the Fed released its statement regarding inflation and monetary policy. As noted above, it looks like nothing is changing — which isn’t surprising, considering the Fed didn’t give a second thought to the 5.4% increase in inflation last month.
So the Fed will continue to increase its Treasury holdings, keep rates low and, once again, use our favorite word…
“Transitory.”
Looking back at our report from Monday, what comes next, now that our expectation of the July Fed inflation meeting has come true?
Outcome of the July Fed Inflation Meeting
While Fed Chair Jerome Powell and the rest of the committee turn a blind eye to inflation, Bitcoin (BTC) and copper are signaling that commodity inflation isn’t quite done yet.
For those who haven’t been following, I’ll remind you that Bitcoin isn’t a currency… Currencies aren’t anywhere near that volatile.
Instead, it behaves more like a commodity. And as such, it can also be used as an important indicator for where the economy is headed.
If it can reach above $41,307, that would be a higher high following a higher low, which often indicates a trend reversal. Copper, in fact, has already hit that threshold, making a new near-term high as it rose above $4.60 per pound in trading Wednesday.
On top of that, natural gas broke through $4 in a big way…
… and coal prices around the world are following right along.
So even though the Fed doesn’t recognize it, inflationary pressure remains with us in a big way.
What to Do Moving Forward
Now that the July Fed inflation meeting is done, we can turn our attention to the big report: gross domestic product.
And if I’m right, which I have been so far, we’ll see the highest number in at least 12 years — possibly decades.
But those annual comparisons get harder in Q3 and beyond, as the economy wasn’t anywhere near as inactive later in 2020. So when that annual comparison starts to decline, from 12% or 13%… to 8%… to 6%… the media will inevitably interpret that as an economic slowdown.
And remember, inflation plus slowdown equals stagflation.
So how do we trade it?
Well, we always say the best way to beat inflation is to own the things that are going up. So we’re going to make a shopping list for commodity-related companies.
And we’re also going to buy some gold as a hedge against both slowing growth and rising inflation… which is when the yellow metal performs its best.
Our favorite way to leverage gold prices is through ProShares Ultra Gold (NYSEArca: UGL). It went on sale for a decent price Wednesday, and it’s during times like that we want to pick up incremental amounts. Perhaps as small as a tenth of any intended stake.
Who knows… If that GDP figure is really off the chain, we may even get a chance to buy some more.
But those are just our thoughts in the wake of the July Fed inflation meeting.
All the best,
Matt Warder
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