• Surveys reveal a majority of Americans are worried about their retirement funds
• Soaring inflation, rising interest rates and steep stock market drops are devaluing funds
• Retirees and potential retirees face stark choices to adapt to the changing financial landscape

Americans Are Worried About Their Retirement

For many Americans, runaway inflation is eating away more than just their take home pay. Inflation is threatening their future as it shrinks the value of their retirement funds.

Overall, people are very worried about their financial futures. Voya Financial’s Consumer Research survey found 66% are worried about inflation affecting their ability to save for retirement. That number jumps up to 75% when it comes to Millennials and Gen X. And more than 40% have tapped their retirement funds to cover their bills today.¹

Retirement funds primarily rely on the stock market. 2021 was a banner year for stocks. It gave some people the incentive to retire early. But rampant inflation, rising interest rates and recession fears are causing a sharp reversal. The S&P 500, the benchmark for many index funds, is about 17% from its all-time high in early January. The sinking stock market is fueling retirement fears.

Retirement planning is becoming more challenging as the investment landscape shifts. Bonds are losing their reputation as a safe haven. High inflation has made bonds, and the fixed payments they make, less attractive. One index of high-quality U.S. bonds has lost more than 9% this year. This is because the price of bonds goes down as interest rates go up. And right now, the Federal Reserve is quickly raising interest rates to get record inflation under control.²

Inflation is already punishing people with higher prices on everything from gasoline to food. And the rising rates to fight inflation may very well slam the economy into recession. A vicious progression is happening. Inflation is leading to rising interest rates. They lead to recession. And in turn, recession puts downward pressure on stock prices. Further reducing the value of retirement funds.

Inflation Is Breaking The 4% Rule

Famed financial advisor Bill Bengen first devised the 4% retirement rule in 1994. Since then, retirees have relied on this rule to help determine how much they should spend in retirement. The rule is relatively simple. You add up all of your investments. Then you withdraw 4% of that total during your first year of retirement. In later years, you adjust how much you withdraw to account for inflation.

This approach would have protected retirees from running out of money during every 30-year period since 1926. Even when considering the Great Depression, the tech bubble, and the 2008 financial crisis. However, due to the combination of high inflation and high stock and bond market valuations, Bengen believes his 4% rule is no longer adequate. Retirees will need to cut back on their spending to make their money last.³

What To Do

Historically, the stock market starts delivering positive returns within a year of a crash. But some people can’t wait to make up their losses. Many Americans now expect a significant shortfall in their retirement savings. The leading concern, according to the 2022 Schroders U.S. Retirement Survey, was that inflation would shrink the value of their assets. The second concern is becoming a reality right now- a major market downturn significantly reducing their assets. A great number of people’s portfolios are down 20% or more for the year.⁴

Americans on the cusp of retiring face a choice, stay on course or keep working. Some people are pushing back their retirement date in the hopes of waiting out the market. There are other advantages to waiting. Delaying retirement gives you an opportunity to snag higher Social Security benefits, boost your savings, and stretch your nest egg. And any of those things individually could set the stage for a more financially secure ride during your senior years.

Those who have already retired are picking up part time jobs. In line with the advice of financial planners like Bengen, they are also delaying major purchases or travel plans.

Social security is small comfort. It does have a built-in inflation adjustment, but it doesn’t keep up with real inflation. Pensions, for those few people who still have them, often max out their inflation adjustment at 1.5%.

A new paradigm is emerging as we witness the end of a 40-year bull run. For people facing retirement or recently retired, preserving value in the face of soaring inflation and a highly volatile stock market should be a priority. They should learn about how safe haven assets like precious metals can secure their retirement funds. For more information, contact American Hartford Gold to find out about their Gold IRA.

Notes:
1. https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/high-inflation-disrupts-retirement-savings-strategies.aspx
2. https://www.tampabay.com/news/nation-world/2022/05/24/stock-market-slump-unsettling-americans-eying-retirement/
3.https://www.usatoday.com/story/money/personalfinance/retirement/2022/05/20/retirement-4-percent-spending-rule-no-longer-works/50251755/
4. https://www.fa-mag.com/news/a-comfortable-retirement-appears-out-of-reach-for-most-americans-68040.html

• The S&P 500 is poised to become an official bear market
• Stock market selloffs are being driven by inflation, interest rate hikes, and global uncertainty
• The market bottom may not be hit until October, investors seek safe havens

Beginnings of the Bear Market

This summer is quickly beginning to look like bear season. The bull market is almost officially over. Stocks have fallen dramatically in 2022. The Nasdaq, down nearly 25%, is in a bear market. The S&P 500 is on a six-week losing streak and about 16% below its all-time high. Some analysts forecast a stock market downturn where losses exceed those of the 2008 stock market crash.¹

A bear market is, by definition, a 20 percent decline from the most recent market top. Technically, the Standard & Poor’s 500 stock index is in a “correction”. A correction is a decline between 10 percent and 20 percent.²

The S&P 500 entered correction territory last month. That is the second time this year. A tough April for stocks was followed by an even rougher May. Stocks plummeted as investors dumped megacap tech stocks. Netflix shares, for example, have plunged 75 percent. Online payment company PayPal is down 74 percent from its high.³

Investors bailed on formerly highflying favorites in reaction to unchecked inflation. As well as the Fed’s mad scramble to stop it with aggressive rate hikes.

Hopes that the April data would show inflation had peaked were dashed. The annual pace of inflation slowed to 8.3% from 8.5% in March. Moreover, a core CPI reading, which strips out food and energy, showed an unexpected monthly rise.

Based on figures going back to 1929, the average bear market sees a median fall of 33.2%. On average, it has taken 80 trading days for the S&P 500 to hit its low after entering a bear market.⁴

So stocks may need to drop a lot further before the market finally hits bottom. Especially since the Federal Reserve seems intent on raising interest rates more aggressively to fight inflation — no matter what happens to stocks.

“Restoring price stability is an unconditional need. It is something we have to do,” Fed Chair Powell said. “There could be some pain involved,” Powell added. “The Fed will continue to raise rates until they see a clear breaking of the inflation trend.” The sinking market is revealing the true value of stocks after the Fed’s price supports have been pulled out from underneath it.⁵

The big question is how much lower the US S&P 500 might fall. The good news, according to Bank of America strategist Michael Hartnett, is that “bear markets are quicker than bull markets”. Based on data gleaned from the last 19 of them, he reckons the S&P 500 “still has another roughly 25% downturn ahead of it from current levels”. The bottom, he suggests, might be hit in October. Though “a floor does not equal a new bull market for tech stocks.” They are likely to “remain in a bear market for the next two years”.⁶

How to Treat a Bear

Some advisors suggest that if you’re retired, don’t take withdrawals from your stock funds in a bear market unless you have no other choice. You won’t have income to cover your losses. And if your stock fund is down 15 percent and you withdraw 4 percent, your account will be down 19 percent. Withdrawals in a bear market just make things worse.

Instead, many financial planners recommend putting some funds in ultrasafe investments, such as gold. Gold acts as a hedge against the depreciation of stocks in your portfolio. To learn more about how a Gold IRA can protect the value of your funds, contact American Hartford Gold today.

Notes:
1. https://www.cnn.com/2022/05/16/investing/stocks-bear-market-federal-reserve-inflation/index.html
2. https://www.aarp.org/money/investing/info-2022/bear-market-field-guide.html
3. https://www.aarp.org/money/investing/info-2022/bear-market-field-guide.html
4. https://www.marketwatch.com/story/the-s-p-500-is-on-the-brink-of-a-bear-market-heres-the-threshold-11652381057
5. https://www.wsj.com/amp/articles/feds-powell-to-take-wsj-questions-on-inflation-and-economic-outlook-11652779802
6. https://www.theweek.co.uk/business/markets/956728/bear-market-how-long-will-the-carnage-last

• Newly released inflation data suggest inflation could be at a peak
• The stock market experienced massive drops in reaction to the Fed’s inflation numbers
• Trader’s ‘fear gauge’ implies the market hasn’t hit bottom yet, seek safe haven assets

Peak Inflation May Have Been Reached

Just because things aren’t getting worse, doesn’t mean they are getting better. Newly released inflation data suggests the U.S. may have hit peak inflation. The consumer price index accelerated 8.3% in April, more than the 8.1% estimate. It is near the highest level in more than 40 years. However, this is down from 8.5% in March. Some economists are seizing this as a sign that we’ve hit peak inflation.¹

However, core CPI, which excludes food and energy, was higher than expected, rising 6.2%. Shelter costs, which comprise about one-third of the CPI, rose at their fastest pace since 1991. And inflation-adjusted earnings continued to decline for workers. This rise clouds the hopes that inflation has actually peaked. The Bureau of Labor Statistics reported on Wednesday that the continuing climb has pushed consumers to the brink and is threatening the economic expansion.²

The Federal Reserve considers inflation the single biggest threat to the economic recovery from the Covid pandemic. Bringing the record inflation under control has become their singular focus. The Fed last week raised interest rates by 50 basis points. Chair Jerome Powell said two more such hikes were likely at the upcoming policy meetings. There has also been speculation in markets the U.S. central bank will need to move by 75 basis points at one meeting.

Morgan Stanley now forecasts 2022 global economic growth to be less than half of last year’s. These signs of slowdowns might be exactly what the Fed is hoping for. The central bank is looking to slow growth via its interest-rate hikes, just not so much that it causes a severe contraction. Chair Jerome Powell said last week that nothing suggested the economy is close or vulnerable to a recession. However, economists and the market disagree.

Stock Market Responds to the Fed with Wild Volatility

Following the announcement of rate increases, the markets went into free fall as investors sold everything. Traders hit the sell button on virtually every key asset class — including stocks, bonds and bitcoin — ratcheting up the fear factor on Wall Street. The S&P was sent reeling to its weakest levels in a year. U.S. stocks have now seen a string of days with drastic losses.

The VIX, aka ‘Wall Street’s fear gauge’ is still not signaling that the stock-market bottom is near, analysts said Monday. The VIX is referred to as Wall Street’s ‘fear gauge’ because it tends to rise when stocks tumble. According to analysts, the VIX indicates investors fear an even deeper selloff in coming months as the Fed prepares to continue tightening aggressively in its effort to rein in inflation.

Investors are ditching the market and searching out safer terrain. While bonds have historically been a good addition to reduce portfolio risk, today’s inflationary environment is likely to substantially decrease the benefits of bonds. Government paper has relinquished its traditional role as a safe-haven when stocks are in turmoil.

Meanwhile, gold bounced up as the dollar retreated after the inflation data announcement. Gold’s uptick resumed on Wednesday.

There is the possibility that we are at peak inflation. But based on the reaction of the market, the climb down is going to be slow and dangerous. The Fed’s desire to engineer a soft landing for the economy is getting tougher by the day. The truth is that no one knows when inflation will hit a ceiling and when stocks will hit the floor. The smart move now is protecting your assets. To lean how a Gold IRA can secure your funds, contact AHG today.

Notes:
1. https://www.cnbc.com/2022/05/11/cpi-april-2022.html
2. https://www.cnbc.com/2022/05/11/cpi-april-2022.html

• The Federal Reserve raised interest rates by half a point, with the promise of more to come
• The gold market accounted for these hikes and remains strong
• The price of gold is set to reach new heights according to several financial experts

The Fed’s Record Rate Hikes

Today, the Federal Reserve raised its benchmark interest rate by half a percentage point. The 50-basis-point increase is the biggest hike since May 2000. It’s the most aggressive step yet in its battle against the highest inflation in 40 years. Meanwhile, a possible 75-basis-point hike is on the table for June.¹

Along with the raising rates, the central bank indicated it will begin reducing asset holdings on its $9 trillion balance sheet.

Many on Wall Street are concerned that the Fed’s ‘overtightening’ could lead to a recession. They feel the Fed is going too far in one direction after once calling inflation ‘transitory’. Despite the markets being prepared for both moves, there was increased volatility.

Gold Predicted to Overcome the Effects of Increased Rates

Gold, however, seems to be going off script when it comes to rate hikes. Traditionally, gold prices go down when rates go up. The idea being that the demand for an inflation hedge decreases. Also, fewer dollars would be required to buy an ounce of gold, reducing its dollar price. In this world rocked by inflation, war, and pandemic, old beliefs are being challenged as investors are forced to adapt. As the markets turn bearish, gold looks more and more like a bull.

Gold traders have baked an aggressive set of policy moves by the Federal Reserve into their prices. This means gold could rally if the Fed delivers as expected. It could also get support if the Fed responds to the possibility of a recession by slowing down the pace of its future rate hikes.

Gold is now seen as a winning bet in the face of the Fed’s move according to several sources.

Fidelity International believes that the price of gold is being held back. First, by aggressive interest rate increases. And second, by speculation over what Russia might do with its $140 billion worth of gold reserves.

However, Fidelity stated that gold is still an attractive investment. They cited the war in Ukraine, China’s economic slowdown, hot inflation, and the volatile stock market as reasons. The suppressed price can actually be a buying opportunity.

“Gold might have seemed the ideal asset to own, so have would-be gold investors now missed the boat? To the frustration of longer-term gold bulls, the answer is probably not,” Fidelity analysts noted. All the precious metal might need to reach new record highs is time, according to Fidelity International. ²

A recent Reuters poll of 31 analysts and traders echoes this sentiment. It concluded that the median forecast for gold prices came in at $1,920 an ounce for the April-June quarter. Gold prices are expected to hold firm this quarter as investors seek refuge from market volatility.³

Billionaire hedge fund manager Paul Tudor Jones is of a similar opinion. Jones shot to fame after he predicted and profited from the 1987 stock market crash. “You can’t think of a worse environment than where we are right now for financial assets,” Jones said Tuesday. “Clearly you don’t want to own bonds and stocks.” He said investors should prioritize capital preservation in such a challenging environment. One of the best ways to preserve capital is to invest in gold.⁴

Finally, Bloomberg Intelligence believes time is on gold’s side. They think gold will breach $2,000 once markets identify the end of the Federal Reserve rate-hike cycle. Their reasoning is that the rate hikes will contract the stock market. After the drop is great enough, the Fed will ease up on the financial tightening. When that bottom is reached, gold will launch up again. And this is what is likely to happen in 2022, according to the report. When the market predicted that rate raises were over, gold began the rally from about $1,000 an ounce to the high close of $2,063 in August 2020.⁵

The Fed’s clumsy attempts to fine tune the economy keep overcompensating in the wrong direction. First, it pumped in too much cash during pandemic. Now, it is aggressively taking money out. In the face of all this heavy handiness, gold is proving itself to be the stable choice. Now is the time to think long term and learn about a Gold IRA. Contact American Hartford Gold to learn how.

Notes:
1. https://www.cnbc.com/2022/05/04/fed-raises-rates-by-half-a-percentage-point-the-biggest-hike-in-two-decades-to-fight-inflation.html
2. https://www.fidelity.co.uk/markets-insights/investing-ideas/investing-ideas/whats-been-holding-the-gold-price-back/
3. https://money.usnews.com/investing/news/articles/2022-05-03/inflation-and-war-risks-to-buoy-gold-in-short-term-reuters-poll
4. https://www.cnbc.com/2022/05/03/paul-tudor-jones-says-he-cant-think-of-a-worse-financial-environment-for-stocks-or-bonds-right-now.html
5. https://www.bloomberg.com/professional/blog/commodities-appear-at-higher-risk-of-2008-style-pump-and-dump/

• China enforces strict lockdowns to stop Covid-19
• Shuttered Chinese industry will cause shortages and raise inflation
• Snarled Chinese ports will also drive inflation higher

China Shuts Down to Stop Covid-19

The economic crisis caused by the pandemic is returning to where it all began. Beijing is prioritizing control of the pandemic above all, including the fate of the global economy. The Chinese government is taking drastic measures to stop the spread of COVID-19. They have implemented a zero COVID policy. As of April 19, more than half of China’s biggest cities were under some form of lockdown. Two and a half weeks after extending a partial lockdown into a shutdown of the entire city, Shanghai shows few signs of easing its COVID-19 controls.

The economic damage caused by the massive lockdowns is not confined to China itself. Experts say China’s lockdowns will make inflation and the supply chain nightmare even worse.

China accounts for about 12% of global trade and 18% of all U.S. imports. And for computers and electronics, that number rises to 35%. Covid restrictions have idled factories and warehouses, slowed truck deliveries and exacerbated container logjams. U.S. and European ports are already snarled. The $22 trillion trade in global goods is facing months of severe disruption.¹

Covid Lockdown Effects on the Global Economy

Companies are beginning to panic. “The downstream impact is coming, and it’ll be heavy.” John Bree, the chief risk officer at Supply Wisdom, said. “The latest China lockdowns combined with the Russia-Ukraine war is too heavy a burden. The global chaos is going to further exacerbate disruption and take inflation to a new level.”²

Bank of America analysts said that it’s “another adverse supply shock for the global economy.” And that it will weaken growth and extend the period of high inflation.³

A top Huawei executive said, “If Shanghai cannot resume production by May, all of the tech and industrial players who have supply chains in the area will come to a complete halt. Especially the automotive industry. That will pose severe consequences and massive losses for the whole industry. This will result in supply shortages of some consumer goods in the U.S. in the coming months. Notably electronics, home appliances, and clothing will be affected.”⁴

Shipping congestion at Chinese ports also threatens to derail a global recovery already hurt by inflation. Shanghai, home to the world’s largest container port, has remained shuttered since March 28. One in five container ships is now stuck at ports worldwide. 30% of the backlog is coming from China. Problems at ports mean rising costs for companies. And in turn, increasing inflation for U.S. consumers.

Even if strict lockdowns in Shanghai are lifted, U.S. ports will likely be slammed with a wave of pent-up cargo from newly reopened factories in China. That will lead to higher freight rates. It will worsen congestion at ports worldwide. The costs of which, again, get passed onto the consumer. It will likely take at least a year for the logjams to unsnarl and return to normal.

The long-term effect of this chaos could be the end of globalization as we know it. Supply chains are so interconnected and fragile that a single issue in one place will affect consumers around the globe. Bringing supply chains closer to home has now become a business necessity.

There is one positive result from all of this. The price of oil has gone down. The commodity dropped as the market anticipates less demand from a locked down China.

The return of Covid in China seems to be restarting an awful cycle. The global economy is always hanging on the cusp of normalizing, but never getting there. Now is the time to put your money in a safe asset that can weather this storm. Contact AHG about opening a Gold IRA today.

Notes:
1. https://www.bloomberg.com/news/features/2022-04-25/china-s-covid-crisis-threatens-global-supply-chain-chaos-for-summer-2022
2. https://fortune.com/2022/04/23/china-lockdowns-inflation-supply-chain-nightmare-shanghai/
3. https://fortune.com/2022/04/23/china-lockdowns-inflation-supply-chain-nightmare-shanghai/
4. https://time.com/6168543/china-zero-covid-shanghai-lockdown-economy-impact

• The IMF and the Brookings Institute reported a high probability of global stagflation
• Soaring inflation and stagnant growth will continue due to war and pandemic
• Precious metals are set to climb in face of global risks

IMF Report Points to Stagflation

The global economy is racing down the road towards stagflation according to two reports released this week. Both the International Monetary Fund (IMF) and the Brookings Institute detailed how current world conditions point to higher inflation and slower economic growth.

Simply put, stagflation is when a stagnant economy couples with double-digit inflation. Stagflation occurred in the mid-’70s. It was caused by two oil crises that triggered recessions. The economic ‘maliase’ lasted into the 80s.

Stagflation has often been described as the worst thing that can happen to an economy outside of a war, a natural disaster, or a pandemic. If GDP doesn’t grow enough for wages to keep pace with inflation, everyone feels the pinch. Purchasing power declines, people lose their jobs, credit and investment dry up, and poverty increases.

The International Monetary Fund slashed global growth and revised inflation upward in its World Economic Outlook released Tuesday. The IMF sees inflation soaring to 5.7 percent in advanced economies and 8.7 percent in emerging and developing economies. They lowered their prediction for global growth to 3.6% this year, down from 6.3% in 2021.¹

The IMF blames the negative impact of the Ukraine war. They also account for new supply-chain disruptions from China due to its strict Covid-19 measures.

The IMF numbers are being conservative. They are based on a few assumptions. One is that the war remains limited to Ukraine. Another is that further sanctions against Russia don’t include oil. And third, that the pandemic abates throughout the year. If any of these assumptions prove false, IMF predictions for inflation and growth can get much worse.

Barely six months ago, IMF chief Kristalina Georgieva dismissed talk of stagflation. Now, she says that the Russian invasion is a “massive setback for the global recovery” from COVID. She admits that “for the first time in many years, inflation has become a clear and present danger.”²

The findings of the IMF are echoed in the Brookings Institute/Financial Times most recent report.

The Brookings Institute Also Predicts Stagflation

TIGER is a global index tracking the global economic recovery. It’s run by the Brookings Institute and the Financial Times. The index warned in its Sunday update that stagflation might affect most economies this year. They also blamed the war in Ukraine for greatly slowing down the global post-pandemic recovery. The composite index shows dramatically slower growth, rampant inflation, and dropping confidence levels. It says that each of the world’s three big economic blocs faces considerable difficulties.

There is a chance that the U.S. could avoid stagflation due to the relative health of its economy. However, that chance doesn’t look good. The Brookings Institute said, “The Fed is at real risk of losing control of the inflation narrative and could be forced to tighten even more aggressively than it has signaled, raising the risk of a marked slowdown in growth in 2023.”³ Joe Biden knows that stagflation pushed Jimmy Carter out of office. His administration may react by doing what is best for getting reelected, not what is best for the economy.

Precious metals such as gold are set to shine in this current climate. The IMF predicts precious metals will rise by 5.8% in 2022 and by 2.1% in 2023.⁴  Risks to growth, unending inflation, rising geopolitical risks and a fragmenting global economy are pushing investors to safe havens. If you have assets you want to protect from stagflation, contact AHG to learn more about the benefits of a Gold IRA.

Notes:
1. https://www.politico.eu/article/imf-warns-of-inflationary-spiral/
2. https://www.gzeromedia.com/will-stagflation-make-a-comeback
3. https://www.ft.com/content/e2f2c5ab-ab3f-4a2f-b700-be6894fc179d
4. https://capital.com/can-gold-shine-again-in-the-wake-of-the-imf-stagflation-warning

• Two measures of inflation hit record highs in March
• Major banks claim that inflation is at its peak is met with skepticism
• Even if this is peak inflation, expect a long, slow descent to normal

March Data Reveals More Record Setting Inflation

More record-breaking inflation was reported this month. Wholesale prices surged again in March. Strong consumer demand, pandemic-related supply chain snarls and the Ukraine war continued to fuel the highest inflation in decades.

The Producer Price Index is the latest data point showing the price pressure. PPI is considered a forward-looking inflation measure. It tracks prices in the pipeline for goods and services that eventually reach consumers. The PPI hit a new all-time high as it rose 11.2%. It was the biggest jump in prices since the data series began in November 2010.¹

Just yesterday, the Consumer Price Index showed that the cost of consumer goods and services surged by 8.5% year over year. That’s the highest recorded level since 1981. Consumers are paying more for everyday necessities, including groceries, gasoline and cars.²

Swelling inflation has prompted the Federal Reserve to begin aggressively raising interest rates. They aim to lower inflation without causing a recession.

Peak Inflation

Analysts at Bank of America, Morgan Stanley and UBS said Tuesday that they think inflation has hit its peak.

“Barring further severe disruptions, the March release is likely to be the peak in terms of year-over-year rates,” analysts at Deutsche Bank predicted earlier this week.³

The predictions of “peak inflation” could comfort the White House. Democrats face a potential loss of Congress in this year’s elections because of inflation. Voters have consistently told pollsters that price increases are a top concern. They give President Joe Biden low marks for his handling of the economy.

The banks are optimistic for a couple of reasons. They see supply chain snags unwinding as we move past Covid. According to them, lower used car prices are an indicator of this. Another reason is that the Fed is strongly tackling the issue with high interest rates.⁴

Skeptics say we’ve seen this movie before. When inflation started raging last year, both Fed Chair Jerome Powell and Biden played down the phenomenon as “transitory.” That wasn’t the case.

There are serious concerns about inflation lingering. The prices of services are beginning to rise. They are taking the place of goods as the primary driver of price increases.

“We have been at this juncture before where subtle shifts within the data make it appear that the level of inflation has reached its peak for the cycle only to keep marching higher,” Charlie Ripley, senior investment strategist for Allianz Investment Management.⁵

ING Bank stated that US inflation may near its peak, but it will be a long slow descent. This is due to lingering supply chain issues, significant tightness in the labor market and ongoing corporate pricing power. They predict inflation won’t come down to 3% until deep into 2023. At the same time, expect the economy to shrink.⁶

The bank’s peak inflation prediction may be correct. But they also may be hoping for the best, fearing the effects of unchecked inflation. Investors should heed the expression, hope for the best, prepare for the worst. One of the best ways to prepare for lingering inflation is to open a Gold IRA. Contact AHG to learn how you can easily open one today.

Notes:
1. https://www.cnn.com/2022/04/13/economy/producer-price-inflation-march/index.html
2. https://www.cnn.com/2022/04/13/economy/producer-price-inflation-march/index.html
3. https://www.yahoo.com/now/hit-peak-inflation-224715179.html
4. https://www.politico.com/news/2022/04/12/inflation-spiking-consumer-prices-00024707
5. https://www.politico.com/news/2022/04/12/inflation-spiking-consumer-prices-00024707
6. https://think.ing.com/articles/us-inflation-nears-the-peak-but-it-will-be-a-long-slow-descent

• Fed “Doves” express central bank’s aim to stop inflation at any cost
• Survey shows Americans believe inflation is their top concern and a recession is coming
• Inflation fears keep gold in demand despite rising interest rates

Fed “Doves” Commit to Aggressive Rate Hikes to Stop Inflation

Fed Governor Lael Brainard and San Francisco Fed President Mary Daly spoke Tuesday. They stressed the central bank’s commitment to fighting inflation with higher interest rates. “It is of paramount importance to get inflation down,” Brainard said. Raising rates is necessary to ensure that “you’re not worrying about whether prices will be higher, considerably higher tomorrow,” Daly added. She that said inflation running at a 40-year high “is as harmful as not having a job.” She stressed, “we’re not going to let this go forever.”¹

Their comments carried more weight because they are considered the Fed “doves”. Brainard and Daly usually favor low rates. They also prefer less restrictive policies. Their urgency shows how seriously the Fed is taking the threat of inflation.

Brainard also wants to reduce the Fed’s $9 trillion balance sheet at a breakneck pace. The bank’s massive bond-buying program was designed to support the economy during the pandemic. It would be cut as soon as May.²

Major stock market averages closed considerably lower after their announcement.

Inflation is Everyone’s Main Concern

Inflation is costing the average U.S. household an additional $296 per month. Experts expect it to get worse before it gets better.³

A CNBC and Acorns survey showed that 76% of Americans worry inflation will force them to rethink financial choices. People are most concerned about gas prices, housing costs and food costs. In the last year, gas spiked 38%, shelter rose 4.7% and food prices increased 7.9%.

People’s fears are not unfounded. The USDA’s Food Prices Outlook for 2022 March report said that all food prices are predicted to increase. They expect a 5% rise in food prices this year alone. And that’s on top of all the other increases consumers faced over the past several months.

The survey also showed that Americans are unhappy with the White House. 61% of people surveyed disapprove of how President Joe Biden is handling inflation.⁴

Americans are also very concerned about an economic recession. 81% of respondents believe one is likely to happen this year. They aren’t alone. Deutsche Bank on Tuesday became one of the first big banks to predict a U.S. recession. “We no longer see the Fed achieving a soft landing. Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession,” the Deutsche Bank economists. Other analysts currently predict a 30% chance of recession. ⁵

Gold Stays Strong

Gold prices steadied on Wednesday. Concerns over high inflation offset fears of aggressive interest rate hikes.

Meanwhile, rising inflation and safe-haven demand resulted in extraordinary sales of physical gold in March. The U.S. Mint saw its strongest gold bullion demand in 23 years. They reported that sales of American Eagle Gold bullion coins were up 73% from last month.⁶

The Fed is determined to stop inflation at any cost. However, their actions may cause extensive collateral damage to the economy. People who are interested in protecting their retirement funds should act before the Fed’s plans are in full effect. Contact AHG about a Gold IRA today.

Notes:
1. https://www.cnbc.com/2022/04/05/-key-people-from-the-fed-just-spooked-the-markets-heres-what-they-said.html
2. https://www.cnbc.com/2022/04/05/-key-people-from-the-fed-just-spooked-the-markets-heres-what-they-said.html
3. https://www.cnbc.com/2022/04/05/inflation-fears-force-americans-to-rethink-financial-choices.html
4. https://www.cnbc.com/2022/04/05/inflation-fears-force-americans-to-rethink-financial-choices.html
5. https://thehill.com/news/3260164-deutsche-bank-predicts-2023-recession-for-us/
6. https://www.kitco.com/news/2022-04-04/U-S-Mint-sees-strongest-gold-bullion-demand-in-23-years-sells-426k-ounces-in-Q1.html

• 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/