New data out last week showed that prices across the U.S. economy have risen faster than expected, news that enabled gold investors to generate huge profits. The Consumer Price Index rose by 0.5 percent in January, indicating widespread rises in fuel, food, clothing and housing.
Although inflation is only moderate, rising inflation expectations caused investors to flock toward gold, which typically gains value during inflationary periods, pushing the yellow metal to $1,364 per ounce on Friday, near the highest level in 18 months.
To combat inflation, the U.S. Federal Reserve typically raises interest rates, inspiring investors to bet now on higher rates in the future. Stock traders initially dumped equities on fears that higher borrowing costs could hurt corporations, but ultimately found resolve and pushed stocks near a two-week high on Friday.
After almost a decade of near-zero inflation, rising prices could create turmoil as shoppers deal with sticker shock. They will hope to see rising wages to help offset higher expenses, but wages so far have lagged price increases, squeezing budgets for everyday Americans.
Soybeans soar on drought fears
Soybean prices neared a one-year high on Friday, rallying as traders grew concerned about weather in Argentina.
Hot, dry weather is plaguing the South American crop and could reduce yields significantly in the world’s third-largest soybean grower. If Argentina’s crop continues to struggle, more foreign buyers will turn to U.S. soybeans, an expectation that is boosting prices at a crucial time.
While few grocery shoppers closely follow the price of corn or soybeans, prices at this time of year are critical for farmers across the Midwest who need to decide which crop to plant on millions of acres this spring.
In the past few years, producers have been hard-pressed to turn a profit, depending on record-breaking harvests to squeeze by.
For most farmers, the price of corn in Chicago needs to be more than $4 per bushel to turn a profit, and some need to see the price closer to $4.50 a bushel. As of Friday, December corn futures, representing the value of the upcoming fall harvest, was $3.97, leaving many farmers in a precarious position.
Meanwhile, break-even levels for soybeans are near $10 per bushel for many producers, which may cause them to shift toward soybeans, which were priced at $10.22 per bushel on Friday for the November futures, a level that gives many a comfortable margin.