Russian grain export cuts add to inflationary pressures

Gold and silver prices remained stable yesterday – though given the volatility that has affected these markets in recent weeks, those interested in the long-term health of the bull markets in gold and silver may be thankful for some quiet price consolidation. The October Comex gold contract settled $9.90 (0.6%) lower to $1,659.70 per troy ounce. There was little change in the silver price, with October Comex silver settling at $31.963 per ounce – up by just $0.019.

However, grain prices surged yesterday on reports that the Russian government are planning to limit exports, as they did last year. Corn futures traded at the Chicago Board of Trade surged by 6.6% – the biggest one-day gain allowed under exchange rules. Wheat and soybean futures also moved higher, while Jim Sinclair’s MineSet links to a report that shows peanut butter prices in America are rising by 25-40%. Owing to droughts, the price of a ton of peanuts has risen from $450 to $1,150 in just one year.

All of these factors are merely adding supply-side pressures to the costs of many consumer staples. And as famed investor Jim Rogers points out in his latest CNBC interview, with the M2 money supply in America currently surging higher thanks to the Federal Reserve’s stimulus efforts, it seems reasonable to expect US inflation rates to move significantly higher in the coming months. 1970s-style stagflation looks like it’s making a comeback – though a serious banking crisis could lead to a short-term deflationary collapse (before central banks start printing huge amounts of money in an attempt to reflate the system).

Though reports from Europe over the last few days have generally given traders some cause for optimism, the news yesterday that the Slovakian parliament has voted against authorising more funds to be used by the European Financial Stability Facility (EFSF) could result in serious “risk off” moves in trading today – with the euro once again down and the US dollar and Treasuries gaining. The Slovakians will vote again on the measure, though the date of this vote remains uncertain. Slovakia is the only eurozone country not to have ratified increased EFSF payments. Without its “yes” vote, Greece’s latest bailout could be in jeopardy.