• The Fed is unsure of how the Russian invasion will impact the economy
• The Fed still plans to raise rates to tackle runaway inflation
• Those plans can change at any time based on current events

Effects of the Russian Invasion on the Fed

Russia’s invasion of Ukraine threw the Federal Reserve into chaos.

Fed Reserve Chair Jerome Powell said the near-term effects of war in the Ukraine on the US economy are “highly uncertain”. ¹ The invasion could pull Fed policy in opposite directions. Powell admitted that the events in Europe can both increase inflation and undercut growth.

Despite this uncertainty, the Fed still plans to raise interest rates to tame high inflation.

Inflation has already soared to 40-year highs. Russia’s invasion heightened anxiety about energy prices. It could also have broad repercussions for the global financial system.

The Fed believes that higher interest rates are justified. This is because of runaway inflation and an extremely tight labor market. Also, they think the economy can handle higher rates as the impact of the pandemic goes down.

They will also follow through on their plan to reduce their $8.5 trillion portfolio of government securities.

The Fed Lacks a Clear Path Forward

Their plans may change if the war grinds on. The Fed may shift priority to keep the global dollar market stable. But this would conflict with its aim to unload its asset holdings.

Powell gave no hint about how far or how fast the Fed will go to get inflation under control.

The Fed wrongly predicted the inflation rate. They also said supply chain issues have been “larger and longer than anticipated”. Inflation is now at triple the Fed’s 2% target. The current inflation rate surprises policymakers. They thought price increases would be temporary. ²

Interest rates are currently near zero. The central bank is expected to raise interest rates at its March 15 policy meeting. More rate hikes are expected throughout the year. The amount of the rate hikes may change. If oil prices push inflation even higher, than the Fed could choose to act more aggressively down the line.

The challenge facing the Fed comes as Americans are gloomy about the economy. Inflation is one of the most personal ways people experience it. It is weighing on President Biden’s approval ratings. The White House often touts evidence of a pandemic recovery. They point to strong job growth in 2021.They also talk about wage gains for lower-income workers. But inflation upends that rosy picture.

“With all the bright spots in our economy, record job growth, higher wages, too many families are struggling to keep up with the bills,” Biden said Tuesday during his State of the Union address. “Inflation is robbing them of the gains they might otherwise feel.”³

Fed uncertainty is eroding confidence in the institution and the markets. Investors are moving away from Fed connected securities and towards safe havens, like gold. The price of gold is hovering near record levels as the conflict drags on. The yellow metal seems to be the one thing everyone is certain about.

Notes:
1. https://www.reuters.com/business/feds-policy-pivot-track-despite-uncertain-impact-ukraine-war-powell-says-2022-03-02/
2. https://www.reuters.com/business/feds-policy-pivot-track-despite-uncertain-impact-ukraine-war-powell-says-2022-03-02/
3. https://www.washingtonpost.com/us-policy/2022/03/02/powell-testimony-inflation-fed/

• Gold Prices Soar As Russia Invades Ukraine
• Investors Turning to Gold as a Safe Haven
• Analysts Predict Record Prices to Continue Rising

Russia Attacks Ukraine

Russian forces attacked Ukraine on Thursday. The assault was the biggest attack by one state against another in Europe since World War Two. Putin declared what he called a “special military operation” two days after sending troops into Ukraine’s eastern breakaway regions. The latest news follows months of Russian military buildup near Ukraine’s borders with troop numbers counting as many as 150,000.

Investors seeking a safe store of value flocked to gold. The equities markets plummeted into the red as investors left. The Dow dropped 600 points after the attack began. There was a broad sell-off with investors selling shares en masse. The invasion comes as global equity markets were already reeling because of decades-high inflation stemming from the pandemic.¹

Gold jumped more than 3% higher and was trading above $1,950 per ounce. It has risen about 8% in February alone. Gold is at its highest price since late 2020.

Rapidly rising U.S. gold futures show that the demand for gold will continue to increase. The Cboe Volatility index, a gauge of Wall Street fear, spiked to above the 37 level on Thursday. There is a history of gold prices increasing as the Volatility Index increases.²

Leaders called for devastating sanctions on Russia. They want to cut them off from SWIFT. SWIFT is the system that links Russian banks to the global financial system. Sanctions will isolate Russia’s gold supply. Russia is the world’s third-largest producer of gold. They have been building up their reserves for years.

Sanctions will drive the price gold up even more. “As long as the breadth and length of the conflict remains uncertain, I don’t see investors wanting to sell any of these Russia sensitive metals or energy,” said Tai Wong, an independent metals trader in New York.³

If Russia invades Ukraine beyond the separatist regions there will be a shock to the equity and oil markets. The fallout could have sizeable negative impact on the global economy. Fuel prices will increase. Which, in turn, increases inflation on everything else. As inflation rises, investors will purchase gold to hedge against it. This will push the price of gold up even higher.

Jeffrey Halley is a senior market analyst at OANDA. He said, “Prices could continue rallying towards resistance at $1,960 an ounce and test $2,000 in the next few sessions. Gold is a haven asset along with the U.S. dollar and this is its day. We could inevitably see new all time highs in gold.”

Current events will be forcing gold prices up for all the above reasons. The time to protect your portfolio with precious metals is now. Contact American Hartford Gold to learn how.

Notes
1. https://www.cnbc.com/2022/02/24/russia-invades-ukraine-gold-jumps-to-highest-in-more-than-a-year.html
2. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2685826
3. https://www.reuters.com/markets/europe/gold-rises-escalating-ukraine-crisis-spurs-safe-haven-bids-2022-02-24/

• The Russia-Ukraine conflict increased precious metal prices
• Precious metal prove themselves to be safe havens

The effect of Russian-Ukraine tensions

Recent tensions between Russia and Ukraine show how gold is a proven safe haven. Historically, gold prices rise as tensions rise. The conflict pushed it towards $1,900 an ounce. Goldman Sachs said bullion levels could go well above $2,000 per ounce even if the U.S. doesn’t directly intervene in Ukraine.

There are several reasons for this. Conflict causes printed money to lose stability. Central banks around the world are shoring up their gold reserves because they prefer its inherent value. Almost 18% of all the gold mined throughout history is held by governments or central banks.¹

This conflict comes at a time of dwindling stockpiles of raw materials. Russia is a main exporter of those raw materials. Prices go up because the limited supply is being threatened.

Stock earnings and profits are likely to fall due to war. This can unravel the quadrillion dollar derivatives market². The effects of that would be catastrophic. Legendary investor Warren Buffett called derivatives ‘weapons of mass destruction’ ³.

Even after dropping slightly as Russia started a partial pullback of its troops, gold was still at record prices. The conflict could have engulfed Europe and hurt global supply chains. But it was only a short distraction from inflation fears and rising interest rates.

Out of control inflation is a main driver of rising gold prices. The Fed raising rates to stop inflation will push the price of gold even higher. CFRA analyst Sam Stoval said “equity markets are more at risk from the fallout from the war on inflation than on a potential invasion of Ukraine.”⁴

Gold is the Safest Haven

Gold and silver are hedges against both inflation and international conflict. The CFA Institute studied precious metals and conflict. Their study showed that geopolitical risks are different from other economic, financial, and political risks. It also showed that precious metals in a portfolio lower the impact of geopolitical risk. Compared to other hedges, only gold and silver perform consistently.⁵

A dark saying goes, “bad news is good news for gold.” Rising global tensions send investors running from stocks and towards precious metals. International crises are ultimately resolved. However, economic uncertainty remains. Gold is the safe haven asset that will always be in demand. Contact AHG to learn how gold can protect your investment.

Notes:
1. https://theconversation.com/in-gold-we-trust-why-bullion-is-still-a-safe-haven-in-times-of-crisis-144567
2. https://www.investopedia.com/ask/answers/052715/how-big-derivatives-market.asp
3. https://www.proactiveinvestors.com/companies/news/279589/why-gold-remains-the-safe-haven-asset-of-choice-in-times-of-geopolitical-uncertainty-29589.html
4. https://finance.yahoo.com/news/4-pillars-of-the-ukraine-russia-fear-trade-morning-brief-100901955.html
5. https://www.cfainstitute.org/en/research/cfa-digest/2020/12/dig-v50-n12-1

• Precious metal prices are rallying towards new record highs. Wells Fargo predicted that gold can become one of the best performing assets in 2022.
• Analysts are now saying precious metals could be in the first stages of a commodity supercycle.

What Is A Supercycle

A supercycle is a long period of growth that lasts between 15 and 20 years. It is distinct from a bull market. The average bull market only lasts 2.7 years. Economic supercycles tend to produce strong demand for raw materials such as metals. Commodity producers cannot keep up with that demand. As a result, prices keep going up and up.

With commodities, a rising tide raises all ships. They don’t act like other major asset classes such as stocks or bonds. Instead, they move together through long boom and bust cycles.

Silver’s rise alongside gold is an example of this. While gold was setting record prices in January, the U.S. Mint sold 5 million ounces of silver. This was the best start since 2017.

A supercycle is fueled by investors turning to precious metals in response to numerous factors. Some of these include the anemic post-pandemic recovery and spiraling inflation. A deteriorating U.S. dollar and supply chain issues are also influencing investors.

These issues are combining with a lack of faith in the Fed. There is a growing belief that Fed policy can either worsen inflation or shrink the economy.

Investors can see that the days of high risk, high return stock payouts are ending. UBS strategists recently stated that gold continues to outperform other common portfolio diversifiers. This includes digital assets such as bitcoin.

Charts Point to a Supercycle

Past bull supercycles were not straight lines up the charts. Dips, lulls, and pauses in commodity prices are to be expected. Part of what makes bull supercycles last so long is that each dip, lull, and pause makes investors question the run. This often keeps excess supply firmly in the ground.

Gold is a prime example. It has had a great three-year run. Gold hit a new all-time high last year. It reached over $2,100 per ounce. Yet, gold’s supply growth remained negative in 2021. This scarcity feeds the supercycle by insuring a rise in prices. 

Precious metals have always been a proven hedge against inflation and troubled economic times. Now, they have the potential to steadily increase in value for more than a decade. 

You can ride this supercycle to economic freedom by making gold a part of your portfolio as soon as possible.

Call American Hartford Gold at 800-462-0071 to learn how Americans are using tangible assets like gold to protect their wealth and retirement.

 

• Record setting foreign and domestic debt threatens the economy

• The negative effect of government debt on your retirement

• Precious metals are a means to counter instability

 

The Ticking Chinese Debt Bomb

Evergrande, China’s largest real estate developer, is the world’s most indebted developer. They are on the brink of collapse. Experts say the failure of the Chinese property giant could trigger the biggest financial crisis since 2008.

“Far too many Americans have retirement accounts, their pensions, and college funds invested in risky Chinese stocks without even knowing it,” Senator Rubio said. “The Biden Administration needs to recognize that while Wall Street may want to make friends in Beijing, the Chinese Communist Party will gladly enrich itself by wiping out Americans’ savings.”

President Trump created the Phase One trade agreement with China to make sure they purchase American goods. Biden let that part of the agreement slide. But the Democrats still support American financial companies buying bad Chinese loans. In the past, Beijing had to bail out struggling Chinese banks with Chinese money. Under this new accord, American savings can do it. We are financing their failures!

The Danger of US Debt

In a frightening milestone, the Treasury Department announced that the total public debt is over $30 trillion. The national debt surged by about $7 trillion since the beginning of the Biden administration alone.

Meanwhile, the Federal Reserve is shifting into inflation-fighting mode. They announced their first series of rate hikes since 2015. Higher borrowing costs will only make it harder to finance that mountain of debt. Interest costs alone could be more than $5 trillion over the next 10 years. That amounts to nearly half of all federal revenue by 2051.

There is $8 trillion owed to foreign investors that will need to be paid back, with interest. “That means American taxpayers will be paying for the retirement of the people in China and Japan, who are our creditors,” said David Kelly, chief global strategist at JPMorgan Asset Management.

The Biden administration has made virtually no attempt to address the national debt.

“We’re on an unsustainable path,” Fed Chairman Powell told lawmakers last month. The government borrowed trillions for crises like the Covid pandemic.

What It Means For Your Retirement

The Biden administration is fueling the debt crisis. They are paying for the US government with even more debt, at greater interest rates – owed to China.

As it currently stands, the federal government is not expected to be able to pay for Medicare and Social Security. They may have to cut benefits and raise taxes.

Runaway debt is launching a vicious supercycle. Interest rates get raised, the economy shrinks, and taxes rise. IRA funds heavily vested in defaulting countries would face massive loses while any saved cash loses its value to inflation.

There are few safe harbors in this debt cyclone. However, gold is one of the best. Known for retaining value in turbulent times, gold is a proven way to protect your retirement.

Don’t let them steal your hard-earned retirement to bail out reckless foreign governments.

Call now to learn how gold is the smart choice to keep your money safe. 
Call 800-462-0071 or request your free information guide.