It is not inflation if the Velocity of Money is declining
From the June 24th Flash Report
One of the things that most investors do not quite understand is why with all of this stimulus, why haven't we seen inflation become a big issue? With the $trillions in stimulus, most gold bugs had been expecting higher prices and that should have driven up inflation. To those folks, a Fed balance sheet that keeps growing is a sure sign of impending inflation. The Fed balance sheet has grown from $869 billion in 2007 to over $2.8 trillion today.
But inflation is not simply the result of an increase in the supply of money; more importantly it is a result of the velocity of money. The velocity of money measures how fast the money is going through the system; and as we can see on the following chart, this is where the problem lies. Clearly, as the chart shows, all of this money that has been pumped into the banks, has not made its way into the economy.
So while the gold bugs and dollar bears are calling for the end of the world, we are not there yet. The dollar in our opinion will continue to be strong, which means that gold and commodities will likely continue to remain weak, at least for the time being.
As we have noted many times, long term we are very bullish gold, silver and commodities as we feel that this global market, fueled by a growing Asia, will drive the next leg up. But until we see a rise in the velocity of money; that is money flowing into the economy, we will not see that inflation that so many are waiting for.