A Not-So-Temporary Inflation Problem The concept of “temporary inflation,” which many investors and analysts embraced earlier this summer, has given way to concerns that rising prices will likely persist a lot longer than formerly expected. Indeed, the fear that inflation is likely here to stay for a while can be seen in a growing number of analyst reports and corporate earnings guidance updates that admit inflation is a growing problem. Last week, for instance, several major consumer staple companies—including Campbell Soup, J.M. Smucker and Hain Celestial—warned investors of the prospects for additional inflation pressures going forward. Further illustrative of just how much prices are increasing categorically is the graph of the U.S. Consumer Price Index (CPI). As you can see here, the CPI is rapidly accelerating and is above its long-term trend line growth rate, signaling that price increases could potentially become problematic for consumers in the coming months. 
Along these lines, the economist Scott Grannis observed in his latest blog: “The rising inflation we’ve seen this year is not likely to be temporary. The whole price level has been lifted by an excess supply of money, and the Fed has no plans to raise short-term rates or to withdraw excess reserves from the banking system for a very long time.” To further underscore just how serious the recent inflation rate increase has been, Grannis shared the following graph that shows the six-month annualized rate of change in the CPI. This indicator is a much better reflection of the recent trend in retail prices. As Grannis ominously commented concerning this trend, “We haven’t seen inflation like this for a very long time.” 
Moreover, a key economic gauge the Federal Reserve regards as the broadest inflation measure—the core personal consumption expenditures price index—rose 3.6% in July from a year ago. This was the highest level in almost 30 years, forcing many Fed officials to backtrack on previous predictions that inflation would remain temporary. (Including food and energy prices, the index rose 4.2% from a year ago and 4% from June to the highest reading since January 1991.) Adding to growing inflation fears is the clearing of the path toward a massive spending and infrastructure plan by members of the U.S. House of Representatives. According to CNBC, “The House voted to approve a $3.5 trillion budget resolution, advance a bipartisan infrastructure bill and move forward with sweeping voting rights legislation” last week. As I mentioned in the previous update, the $3.5 trillion budget bill would almost certainly be interpreted as inflationary by the financial market and is likely the main reason for the dollar’s latest weakness and gold’s strength. If so, gold now has a strong likelihood of being supported by the fear factor (e.g. Afghanistan and the Delta variant) as well as the inflation factor, both of which would be good news for the yellow metal’s intermediate-term outlook. Turning our attention to the gold mining stocks, the downward trend in prices that has been underway since the beginning of June appears to be nearing a critical juncture. My favorite gold stock tracker, the VanEck Vectors Gold Miners ETF (GDX), is clearly trying to bottom but hasn’t yet confirmed one yet. 
A confirmed bottom requires a decisive close above the widely-watched (and psychologically significant) 50-day moving average—a signal that served to kick off the last extended gold mining stock rally in April-May. As the above chart illustrates, GDX is about 3% under the 50-day line as of this writing. But if the physical gold price follows through with its latest rally this week, I’d expect the leading gold mining stocks to follow bullion’s lead. Further confirmation that the trend for gold stocks has turned bullish again will be seen when my leading indicator for the mining sector reverses its multi-month decline. Shown below is the four-week rate of change (momentum) of the new highs and lows among the 50 most actively traded North American gold mining shares (junior, senior and mid-tier). This is the indicator that, in my estimation, best describes the incremental demand for mining shares. 
A sustained move higher in this indicator will provide a strong clue that the internal path of least resistance for the gold stock group has once again turned up, in turn giving us an opportunity to do some buying among those shares with the best technical and fundamental profiles. Updates In June, I recommended that we buy into the Global X Lithium & Battery Tech ETF (LIT) on weakness. This ETF is what I view as a nice fit with our somewhat related positions in the cobalt (via Wheaton Precious Metals) and neodymium-Praseodymium (via MP Materials) spaces. Investors who haven’t already done so should book some profit in our conservative trading position in LIT after its recent rally to over 20% from our initial entry point (per the rules of our technical trading discipline). I also suggest raising the stop-loss on the remainder of our position in LIT to slightly under 79 (near the 50-day moving average). HOLD Participants purchased a half position in the GraniteShares Gold Trust (BAR) on August 27 after its decisive close above the 50-day trend. I suggest using an admittedly tight protective stop for now by choosing a level slightly under 17.50 as the initial stop-loss on this trading position. (For this trade to succeed, gold needs to follow through on the upside in the coming days and close above the 18.20 resistance fairly soon.) BUY A HALF After the recent strength in steel prices, I placed steel and steel products manufacturer Nucor Corp. (NUE)—America’s largest and most diverse steel maker—on Buy on August 3. Traders accordingly purchased a conservative position in NUE using the 96 level as the initial stop-loss on an intraday basis. NUE closed decisively above its 50-day moving average in late July to confirm the breakout after reporting a 103% year-over-year revenue increase, to nearly $9 billion, for Q2 while net earnings hit a quarterly record of $1.5 billion (versus $109 million in the year-ago quarter). Shares of the steel and steel products manufacturer were up decisively as of August 27, and our position now shows a gain of 15%. Accordingly, I recently suggested taking partial profits and raising the stop-loss on the remainder of the trading position to slightly under 104 (our initial entry point) on an intraday basis. I now suggest raising the stop to slightly under 110 after Nucor’s additional strength since then. On the company front, the top brass said it expects increased profitability across the steel mills segment going forward, and analysts anticipate 97% sales growth for Q3. An impressive record of 48 consecutive years of dividend increases—putting it on the illustrious dividend aristocrat list—is the icing on the cake. HOLD Portfolio
| Stock | Price Bought | Date Bought | Price on 8/31/21 | Profit | Rating |
| GraniteShares Gold Trust (BAR) | 18 | 8/27/21 | 18 | 0% | Buy A Half |
| Global X Lithium & Battery ETF (LIT) | 69 | 6/10/21 | 85 | 23% | Hold |
| Nucor Corp. (NUE) | 104 | 8/3/21 | 118 | 13% | Hold |
Buy a Quarter/Half means allocate less of your portfolio to a position than you normally would (due to risk factors).Hold means maintain existing position; don’t add to it by buying more, but don’t sell. Sell means to liquidate the entire (or remaining) position. Sell a Quarter/Half means take partial profits, either 25% or 50%. Buy means purchase a position at or around current prices.