The Inflation Watch

Gold investors are keeping a close watch on inflation indicators because historically gold has served as a reliable hedge against high inflation. The most important of those indicators is the cost of labor, since wages are the number one expense for the majority of companies, and evidence is mounting that wage pressures are rising and will continue to climb. Companies that have been unable to fill job openings are being forced to boost wages, which will result in higher inflation. That can be bullish for gold. 

The National Federation of Independent Business (NFIB) reports 51 percent of small business owners have job openings they can’t fill, a new record.

“More and more small business owners are struggling to find workers for their open positions,” says NFIB Chief Economist Bill Dunkelberg. “For most small employers, labor costs are the largest operating outlay and owners will be compelled to pass those costs on to their customers by raising prices.”

Forty-two percent of business owners boosted wages during September, a 48-year record high, and thirty percent plan to raise compensation in the next three months, also a new record. 

Confirmation of the hiring challenge came from the federal government’s September employment report. The number of nonfarm jobs grew by just 194,000 in September, less than half the gain economists had forecast.  Job gains have been slowing since mid-summer in spite of the millions of open positions.

Average hourly earnings for private nonfarm payrolls rose to $30.85-an-hour in September, up 4.6 percent over the past 12 months, more proof that the reopening and recovery from last year’s pandemic shock is pressuring wages higher after years of anemic raises in the labor market. 

The bottom line for investors is that inflation is running hot and may run even hotter, as long as companies have to keep boosting wages to attract the workers they need.