The relationship is not always solid, but when inflation starts coming up we see weakness in the currency and strength in precious metals, specifically gold. But that has not been happening with much of the world in a 'worry' about higher prices. Now, don't get me wrong here. There is plenty to worry about with higher prices being offered to an economy with a satiable appetite for consumption. Further, businesses feel it's 'okay' to stick higher prices through to the consumer. This helps keep margins up if input prices start to rise.
I won't get into an economics lecture here, but suffice to say there is a severe imbalance between demand and supply. The recent supply chain disruptions have created 'inflation in a vacuum', and that seems to be what Chairman Powell calls 'transitory'. Yet, while he may be right calling these price rises transitory or temporary, the affects are far-reaching.
Curiously, the inflation we are seeing in our stores, house prices and services is a knock on our wealth. Further, we often see an erosion in buying power with a deterioration of the dollar, but that hasn't been the case. In fact, the buck has been very strong over the past few months as inflation rises per the CPI and PPI. That's not how it has worked in the past.
In addition, when the currency starts to lose buying power a move to hard currency like precious metals is a strong alternative. Think gold and silver here, which are not 'complicit' to the higher inflation argument. Those metals are down for 2021 and continue to make lower lows on the chart.
So maybe inflation is only going to be temporary and recede back towards a 'normal' 2% over time. This was the directive from the Fed last week, but certainly the rising prices across all areas has become a concern. Chair Powell said this week inflation could remain with us longer than expected. Longer than desired? That's a different question requiring a policy decision.