High inflation now

With the price of road transport fuel in the US up by 35% (and with a similar rise in the UK) since the start of the war on Iran, there's no denying that inflation is back. Trouble is, we have no idea how much inflation is going to rise, nor what products will be worst hit.

What's worse is that the IMF (International Monetary Fund) has cut its forecasts for economic growth, from 3.3% in its previous, pre-war estimate, to 3.1% now. As usual, the IMF hedged its bets. It gave three forecasts - one is a reference, which assumes the war will be short-lived, and an adverse and a severe, when the war lasts longer. If the conflict goes on into 2027 (becomes severe) then economic growth will drop to 2% and inflation will rise to 5.8%/year.

Such forecasts are obviously subject to vast change; in January this year the IMF said that it expected crude oil prices to be around $62/barrel this year. Brent crude oil's price (one of the international benchmarks) is around $95/barrel as of writing - prices move up and down almost daily right now. Under the IMF's reference forecast, the oil price is assumed to be $80/barrel. With the oil price closer to $100/barrel we are drifting slower growth, higher inflation.

Stagflation beckons

No one 'knows'

At the outset we need to understand that this view from the IMF and its 1,200 economists will inevitably be wrong. Nobody 'knows' what the future holds - that's one reason why gold is such an important asset. In any darkening situation gold, because it is scarce and not the creation of any government, is acceptable as money - everywhere.

Let's suppose that the Middle East conflict drags on, with much higher global oil prices. That would mean, says the IMF, global economic growth would drop to 2%, a level that has only been beached four times since 1980.

Everyone hopes the war, currently in a stalemate, will end soon. But even if lasting peace breaks out soon - not likely given the current stand-off - restoring the energy supplies will take months. That will give ample scope for higher consumer prices.

China needs Iran oil

Not only do we face higher costs for fuel and other basic goods but many imports from China may also rise in price as a result of the war.

Last year China imported 1.4 million barrels per day (bpd) of Iranian crude oil, more than 80% of Iran's crude oil exports. It uses more than 16 million bpd. Since the war started these imports have collapsed. China has secured some Iranian oil thanks to a US waiver of some of the sanctions on Iranian oil (introduced on 20 March) but this is set to expire on 19 April.

China has substantial energy reserves - about 4 months. The country will soon be forced to import oil that doesn't have the discount Iran offers, from other producers - and that extra cost will be passed onto buyers of Chinese goods. China's leader, Xi Jinping, has implicitly rebuked the US for the war, saying the world cannot risk running the "law of the jungle".

Gold's cease-fire

By the end of March the spot price of gold had dropped nearly 12%, the biggest monthly decline since October 2008. The slowing of aerial attacks on Iran does not signal an end to the war. For the world, the inevitable inflation that will follow is creeping toward us. We are living through profound uncertainty, which is one reason why gold is going through its own cease-fire.

But if stagflation is also inevitable, and policymakers lack the political will or economic room to crush it quickly, gold will go back to war.

While inflated fiat currencies expand on demand, gold's supply can't do that. Gold acts as a measure of how much purchasing power has been lost by a fiat currency. In ancient Rome an ounce of gold bought a high-quality toga and sandals and today would buy a good quality suit. The Dollar, meanwhile, has lost 96% of its purchasing power since the US Federal Reserve was established in 1913. Gold hasn't 'gone up'; the currencies it's priced in have been eroded by inflation.

If we are facing a return to the law of the jungle there's little doubt that any fiat currency won't be worth having. You will be better off with Glint and secure allocated gold.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.