Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Gold Is Flashing an Inflation Signal the CPI Ignores
Transcript
- Lucas: Gold just hit $4,139 an ounce. That's up more than 3 percent in the last five days alone, and the GLD ETF is up nearly 4 percent over the same stretch. Meanwhile, the latest CPI reading, from May, sits at 334.0 — up about 0.5 percent from the prior month. Luna: So gold is screaming and CPI is whispering. That gap has been widening for a while, but it feels especially stark now. Lucas: Right. And the question I keep coming back to is: is gold just a fear trade — geopolitical anxiety, central bank buying, whatever — or is it actually telling us something about inflation that the CPI basket misses? Luna: I think it's probably both. But let's start with the numbers. Gold is up what, nearly 30 percent year-over-year? Lucas: About 28 percent year-over-year. Compare that to headline CPI, which is running around 2.2 percent annually. Core CPI, ex food and energy, is similar. Even the Fed's preferred gauge, core PCE, is at 2.6 percent as of the May reading. So you have this enormous divergence. Luna: And the ten-year breakeven inflation rate — the market's expectation for average inflation over the next decade — is at 2.24 percent. That's not signaling any panic. Lucas: Exactly. So if you only looked at bond markets and CPI, you'd say inflation is mostly tamed. But gold is behaving like it's 1979 all over again. Something has to give. Luna: Let's talk about who's buying. I know central banks have been accumulating gold at a record pace for a couple of years now. Is that still the case? Lucas: It is. The People's Bank of China, the Reserve Bank of India, central banks in Eastern Europe — they've been diversifying away from US dollars and euros. In 2025, central banks bought over 1,000 tons of gold for the third consecutive year. That's nearly double the pace from a decade ago. Luna: So there's a structural demand driver that has nothing to do with US inflation expectations. But doesn't that also reflect a lack of confidence in fiat currencies more broadly? Lucas: It does. And I think that's the piece that CPI doesn't capture. CPI measures the price change of a fixed basket of goods and services — food, rent, gasoline, medical care, tuition. It doesn't measure the purchasing power of your money relative to hard assets or foreign currencies. Luna: So if the dollar is weakening against gold, that's a form of inflation that CPI won't show you directly. Lucas: Precisely. And it's not just gold. Silver is up too, though not as much. The gold miners ETF, GDX, is up 4 percent in the last five days alone. That's a bet on the underlying commodity price staying high. Luna: But Lucas, there's also a narrative that gold is rallying because people expect the Fed to cut rates. Lower rates reduce the opportunity cost of holding gold, since it doesn't pay interest. Lucas: That's a valid argument. The Fed funds rate has been flat at 3.63 percent since June. But the market is pricing in at least one cut by the end of the year. If that happens, gold could rally further. But here's the thing: gold started this leg up long before rate cut expectations shifted. It's been climbing steadily since late 2024. Luna: So what's the real driver? Is it inflation that CPI isn't catching? Lucas: I think it's partly that. Consider this: the labor force participation rate just hit its lowest level in fifty years, outside of COVID. Fewer people working means less productive capacity, which can be inflationary over time. CPI might not reflect that yet because it lags. Luna: Also, we had a very weak jobs report in June — only 57,000 jobs added. The unemployment rate ticked up to 4.2 percent. So the economy is cooling, but prices aren't falling. Lucas: Right. That's stagflation-ish. And gold tends to thrive in environments where growth is slowing but inflation is sticky. Luna: We should also mention the fiscal side. The US national debt is over $35 trillion. Deficits are huge. Some investors buy gold because they're worried about eventual monetization of that debt. Lucas: Absolutely. And that's another thing CPI won't capture. CPI doesn't care about the government's balance sheet. It only cares about what you pay for eggs and rent. But if confidence in the fiscal path erodes, the dollar can weaken, and that shows up in gold. Luna: So for the average listener, what's the takeaway? Should they be looking at gold as an inflation indicator? Lucas: I think it's a useful cross-check. If you see gold surging while CPI is calm, it's worth asking what the bond market and the commodity market are seeing that the consumer survey might not. CPI is a lagging indicator by design. Gold is real-time sentiment. Luna: And it's not just gold. Look at the broader commodity complex. Copper, lumber, even some agricultural commodities have been volatile. That's input cost inflation that will eventually feed through to consumer prices. Lucas: Right. The CPI might not show it in the May reading, but if gold is right, we could see higher inflation prints later this year. Luna: You know, this kind of analysis is exactly why we keep this show ad-free. We don't have to worry about offending a gold ETF sponsor or a bond fund advertiser. We just get to follow the data where it leads. Lucas: That's the whole point. And if you find value in that independence, the best way to support it is a small contribution at buy me a coffee dot com slash fexingo. It helps us keep the lights on without taking any outside money. Luna: Yeah, every little bit helps. And it keeps the show exactly what it is. Lucas: So back to gold. One more data point I want to bring in: the gold to silver ratio. It's been hovering around 85, which is historically high. That usually means investors are favoring gold over silver, which is a more defensive posture. Luna: So even within precious metals, the signal is more about fear than about broad-based inflation. Lucas: Exactly. Silver has more industrial use, so when the economy is strong, silver often outperforms gold. Right now, gold is clearly in the driver's seat. Luna: And the S&P is at 7,537, up 1.3 percent in five days. So equities are also doing well. It's not a classic risk-off environment. Lucas: No, it's weird. Stocks are near all-time highs, gold is at an all-time high, and bond yields are relatively stable. That's not a typical macro picture. Luna: It feels like the market is pricing in multiple scenarios at once. Gold for the tail risk, stocks for the base case. Lucas: And that's why I think gold deserves more attention from inflation watchers. It's not just a hedge. It's a real-time poll of global confidence in central bank policy. Luna: What's your best guess? Will CPI eventually catch up to gold's signal, or will gold correct? Lucas: If I had to bet, I'd say CPI drifts higher over the next six months. The labor market is tightening in weird ways, services inflation is sticky, and commodity prices are still elevated. But gold could also pull back if the Fed cuts and the economy reaccelerates. Luna: So the divergence might close from both sides. Lucas: That's the most likely path. But for now, gold is telling us something the official numbers aren't. And it's worth listening.