• The Fed is aggressively raising interest rates to fight skyrocketing inflation
• Experts fear the increases will trigger a recession and stagflation
• Economic signs warning of recession are flashing

Runaway Inflation Leads to Aggressive Rate Hikes

Economists had once hoped inflation would cool off by this summer. Then Russia invaded Ukraine. Now, the economic outlook has darkened. Prices for gasoline, food, and other raw materials continue to rise.

The economy’s lingering struggles caught the Federal Reserve by surprise. In response, they decided to pursue aggressive interest rate hikes to curb inflation. Experts now fear the rapid increases could stall the economy and bring on a recession.

The Biden administration is giving the Fed a lot of leeway. They know there isn’t much else they can do. Some Democrats worry about killing growth in the middle of a midterm election year. But inflation is even worse for them politically. Recent polls show that price spikes are by far the top concern among voters. ¹

Experts Warn of Recession

Fed Chairman Jerome Powell said that they can tame inflation without collapsing the economy. He cited 1965, 1984 and 1994 as examples. However, history points to a recession. Since 1961, the central bank has raised interest rates to tame inflation nine times. Eight of those times resulted in a recession. ²

Larry Summers, the former US Treasury Secretary, accused the Fed of “wishful and delusional thinking.” He finds “absurdity” in the central bank’s forecast for inflation to rapidly cool off in a red-hot jobs market.

Summers previously warned that Fed policy put the US economy on a path towards stagflation. Stagflation is the toxic mix of weak growth and high inflation. It plagued the US economy in the late 1970s and early 1980s.³

Moody’s Analytics chief economist Mark Zandi said stagflation is a “low-probability” event. He said the Fed would do whatever it took to avoid it. This includes stopping inflation by crashing the economy. “If it looks like we’re going into stagflation,” Zandi said, “the Fed will push us into recession.”⁴

J.P. Morgan currently puts the odds of recession at roughly 30% to 35%. The historical average is about 15%.⁵

Recession Warning Sign Flashing

Yield curve inversions are when short-term bond yields exceed those of longer-term bonds. The spread between the 5-year and 30-year Treasury yields briefly inverted on Monday. This hasn’t happened since 2006. It flipped on fears that aggressive rate hikes would stunt the economy.

Yield curve inversions are rare. They are viewed as a good recession predictor because they reflect investor fear about the economy’s long-term prospects. Every recession in the past 60 years was preceded by an inverted yield curve. This is according to research from the Federal Reserve Bank of San Francisco.⁶

Preparing for Recession

The underlying economy could be strong enough to handle a few rate hikes. But with a 1 in 3 chance of a recession, it is best to be prepared.

Gold is proven to hold its value as the economy contracts during a recession. During the Great Recession, the Producer Price Index (PPI) for gold rose 2.6 percent in 2008. It increased 12.8 percent in 2009. Overall, between 2008 and 2012, the value of gold increased dramatically. Gold had a 101.1-percent surge in the PPI. It set a then record high of $1,917.90 an ounce in August of 2011.⁷

If you are interested in hedging against the likelihood of a recession, contact a precious metals specialist at AHG about a Gold IRA today.

Notes:
1. https://www.politico.com/news/2022/03/29/federal-reserve-recession-inflation-rates-00021119
2. https://www.cnn.com/2022/03/25/economy/recession-risk/index.html
3. https://www.cnn.com/2022/03/25/economy/recession-risk/index.html
4. https://www.cnn.com/2022/03/25/economy/recession-risk/index.html
5. https://www.cnbc.com/2022/03/28/bond-market-is-flashing-a-warning-sign-that-a-recession-may-be-coming.html?&qsearchterm=recession
6. https://www.foxbusiness.com/economy/recession-warning-flashes-red-yield-curve-inversion
7. https://www.bls.gov/opub/btn/volume-2/pdf/gold-prices-during-and-after-the-great-recession.pdf

• Fed Chair Powell promises bigger, faster rate hikes to combat soaring inflation.
• The Fed hopes for a ‘soft landing’ but history points to recession.
• Gold positioned to hedge against inflation and recession.

Powell Threatens Faster and Bigger Rate Hikes

After letting inflation grow at its fastest pace in 40 years, Federal Reserve Chair Powell is desperate. Inflation is now at 7.9%. Powell said the Fed may move much more quickly to get it under control. He is ready to raise rates faster if needed. He’ll also quickly withdraw Fed support from the economy if necessary.

“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Mr. Powell said. “That story has already fallen apart. To the extent that it continues to fall apart, my colleagues and I may well reach the conclusion that we’ll need to move more quickly.”¹

Policymakers already raised interest rates by a quarter point last week. They forecast six more similarly sized increases this year. The goal is to squeeze the economy, slow consumer spending and loosen the labor market. Essentially, they want to slam on the brakes instead of just easing off the gas.

Asked what would keep the Fed from raising interest rates by half a percentage point at its next meeting in May, Mr. Powell replied, “Nothing.” They said they would make a supersized move if they thought one was appropriate. Experts predict the Fed will raise its key interest rate to more than 2 percent by December. ²

He said that the timing of settling into some new normal is ” highly uncertain.” In other words, they don’t how long inflation will last. Powell implied that rates won’t be determined by economic forecasts. Instead, rates will come down when actual prices come down. Until then, they will just keep raising rates.

Recession Likely

The Fed has put a damper on stock market traders. They are moving away from riskier assets. Raising rates hurts share prices if they tank economic growth or cause the economy to contract.

History is littered with examples of the Fed causing a recession in its attempts to rein in inflation. But Powell is hopeful that there can be a ‘soft landing’. However, the Fed is believed to behind the curve on solving this problem. As a result, the financial community has lost faith in them. They are betting on history over hope. ³

Gold prices held onto gains in the face of the news. Typically, if the Fed raises rates, gold prices go down. The idea being is if inflation is going down, people won’t seek a hedge against it. But global conflict, slowing growth, and rising oil prices are keeping the threat of inflation very real.

One of the best investments if the Fed does cause a recession – Gold. Gold is a safe haven in both inflation and recession.

The most recent recession occurred between 2007 and 2009. It was a brutal and long economic downturn driven by the housing crisis. The S&P 500 Index dropped 37% during that time. But what happened to gold? The price rose 24%!

The World Gold Council tracked the correlation between gold and the S&P 500 Index between 1987 and 2010. They found that in a recession, when stock prices are likely plummeting, you can expect gold to be moving the other way. ⁴

If you are interested in protecting your retirement fund from today’s inflation and tomorrow’s recession, you should contact America Hartford Gold about opening a Gold IRA today.

Notes:
1. https://www.nytimes.com/2022/03/21/business/economy/powell-fed-inflation.html
2. https://www.nytimes.com/2022/03/21/business/economy/powell-fed-inflation.html
3. https://www.axios.com/fed-chief-powell-supply-0222dcd7-224b-46e8-9ff9-2a523d7ad605.html
4. https://www.fool.com/investing/2017/07/01/why-investors-buy-gold-in-a-recession.aspx

• The Federal Reserve approved raising interest rates to fight soaring inflation.
• The US faces the fastest and largest rate increases in years.
• No guarantee inflation will be tamed but the economy may stall out.

Inflation Drives Need for Rate Increase

The Federal Reserve approved the first interest rate hike in more than three years. Six more rate hikes are scheduled for this year alone. The Fed says the aim of rate hikes is to tame runaway inflation.

Price increases are at their fastest 12-month pace in 40 years. The increases are made worse by clogged supply chains unable to meet renewed demand. Prices are up 7.9% year-over-year according to the Consumer Price Index. Gasoline alone has risen 38% in the 12-month period. ¹

The Ukraine war has just made inflation worse. The conflict spiked oil prices – which turbocharges inflation. The Russian invasion is going to have a negative impact on the US economy. The Fed stated, “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.” ²

When the Fed raises interest rates, the effects ripple throughout the economy. Mortgages, auto loans, and credit card rates become more expensive for consumers. Businesses also pay more to borrow the money they need to fund their operations or expand. That tends to make both consumers and businesses spend less. Which may then cool the economy and, hopefully, drive down the prices of goods and services.

The Fed acknowledges they missed the mark by calling inflation ‘transitory’ in December. Their original 2% target now looks ridiculous. They now estimate dramatically higher inflation and much slower GDP growth. Kiplinger’s predicts inflation will soon spike close to 10%. ³

How High and How Fast Rates Are Going Up

The policy making Federal Open Market Committee will raise rates by a quarter percentage point. This puts the rate in a range between .25% and .50%.

They are scheduled to raise rates at each of the six remaining meetings this year. And then three more hikes in 2023. And theoretically, no hikes in 2024. The Federal Reserve hopes by raising the rates incrementally, they won’t stall the economy.

Fed policy set the groundwork for this out-of-control inflation. Inflation was superheated by unprecedented levels of fiscal and monetary stimulus – more than $10 trillion worth.

Also, the Fed tried a new inflation policy in September 2020. They slashed rates to near zero and kept pumping money into the economy to keep it afloat during the pandemic. They agreed to let the economy heat up in the interest of a full and inclusive employment goal that spanned race, gender and wealth.

The Fed is not only going to raise rates. They are also going to unload the nearly $9 trillion balance sheet of mortgage-backed securities they bought during the pandemic. ⁴

Experts predict the most likely result of raising rates and dumping their holdings will be a major stock market drop.

The country now faces a few paths before it can return to normal. Either there will be double digit inflation, a recession, or, worse case scenario, both.

If you have retirement assets that you don’t want lose, the time to protect them is now. The Gold Ira from American Hartford Gold is the ideal vehicle to secure your retirement funds. Contact them to learn more.

Notes:
1. https://www.cnbc.com/2022/03/16/federal-reserve-meeting.html
2. https://www.cnbc.com/2022/03/16/federal-reserve-meeting.html
3. https://www.kiplinger.com/economic-forecasts/inflation
4. https://www.cnbc.com/2022/03/16/federal-reserve-meeting.html

 

• Russia-Ukraine conflict and inflation fears increase demand for gold
• Goldman Sachs revised their gold price projections to new record levels

Gold Trading at Historic Levels

Due to current events, Goldman Sachs has pushed its gold price projections on the 6-month horizon to a record $2,500 an ounce. That’s almost $500 more than the previous record price set in August 2020.

Gold prices passed $2,000 an ounce for the first time in a year-and-a-half on Monday as Russia’s full-scale assault on Ukraine continued.

Gold surged again to trade above $2,070 this week.¹ Analysts are now predicting a sustained rise as further sanctions against Russia rattle markets. Investors are flocking to gold as the crisis worsens. Gold is seen as a safe-haven asset in times of market turmoil because it retains its value during a time of crisis. Goldman Sachs called gold the “currency of last resort”.

Gold Price Projections

Goldman Sachs updated their gold price forecasts due to the conflict, international inflation and the threat posed by rising interest rates.

The bank changed its 3-month horizon to $2,300 an ounce, from $1,950 an ounce previously.
The 6-month protection has moved to $2,500 an ounce, from $2,050 an ounce previously.²

Goldman is citing the demand for gold is coming from consumers, investors, and central banks. Everyone is seeking a way to shelter their wealth in the face of soaring inflation and a stagnating economy.

Stocks and bonds have been experiencing wild swings with dramatic one day drops since the conflict began two weeks ago. Bitcoin has also continued to be volatile, losing the ‘digital gold’ title previously bestowed on it by some investors.

The crisis is shaking a fragile global economy that was already struggling with inflation, supply chain issues and the remnants of a pandemic. Unfortunately, there seems to be no clear ending in sight for the conflict. So, while stocks keep dropping, informed investors are moving into the one commodity that is poised to keep increasing in value – gold. Learn how to protect your assets with a Gold IRA from American Hartford Gold. Give us a call today 800-462-0071.

Notes
1. https://www.marketwatch.com/investing/future/gold?mod=home-page
2. https://www.cityam.com/gold-surges-again-as-goldman-predicts-price-will-top-2500-this-year/

• 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.