If more evidence is needed to prove the rising inflation rates, you need look no further than the 12-year high lumber prices just posted recently, fuelled by the possibility of the steep duties that may be soon posed on cheap softwood imported from Canada to the United States (US). Soon after home ownership hit a high in the US, lumber futures went up to almost US$415 per thousand-foot board, something that had not been seen since March 2005.
One of the major factors behind the raise is the mini-trade war between Canada and the US. For quite some time now, the American lumber industry has accused the Canadian lumber industry of unfairly dumping timber far under market value on the US. However, a number of factors are now slowly pushing the lumber prices higher. One of the top factors among them is the probability of raising lumber duties at the Canadian border – with the possibility of it happening sooner rather than later; an increasing demand for new homes in the wake of the housing crisis as consumer optimism rises and millennial buyers – those born between 1981 and 1998 – are ready and eager to enter the housing market; as well as President Trump’s repeated urges to renegotiate the North American Free Trade Agreement (NAFTA).
As of April 12th, shares in Western Forest Products and Canfor Corporation, Canada’s number five and two lumber producers by lumber output as of the writing of this article, have risen 16.8 per cent and 25.5 per cent respectively in three months.
All this, in turn, is incredibly positive for the price of gold, which was always historically – and still frequently – used as a method of hedging during times of rising inflation. Recently, the precious metal closed over US$1,270 per ounce for the very first time since the US presidential election in November 2016. The price of gold was also positively affected by the geopolitical tensions related to North Korea, Russia, and Syria.
And with the US increasing its military action and presence beyond its borders – which includes the drop of a destructive bomb in Afghanistan – many investors are looking to “safe haven” financial instruments much like gold and treasuries. The price of gold also went on to positively respond to President Trump’s support of low interest rate policies.
The next factors are the rising consumer optimism and entrance of millennial homebuyers into the housing market. Homebuilder confidence, too, is on the rise, and the National Association of Home Builders (NAHB) measured a 12-year high in March, the figures boosted by an improving economy and President Trump’s promises to roll back certain strict regulations. Bullish mortgage rates and home prices are also likely among the reasons behind buyers entering the market. The millennial generation – now the largest group of homebuyers in the US – represent an estimated 45 per cent of home loans as of January 2017. This figure is projected to rise as the generation grows into their careers and tire of renting places to live.
Sources: Bloomberg, CNN, Frank Holmes, and US Global Investors