Welcome to Kitco News’ 2022 Outlook series. The new year will be fraught with uncertainty as the Federal Reserve appears to be turning and tightening its monetary policy. At the same time, the inflation threat continues to grow, which means that real interest rates remain in low to negative territory. Follow Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.
(Kitco News) – The new year has kicked off with a bang as U.S. consumers continue to face rising inflationary pressures, with consumer prices hitting their highest level in nearly 40 years.
Inflation remains a double-edged sword for the gold market. Although inflation will keep real interest rates low, rising consumer prices are being met with expectations that the Federal Reserve will take aggressive steps to cool the economy.
The Federal Reserve expects to complete its monthly bond purchases in March. Markets also expect to see the first rate hike in March.
The markets are pricing in four interest rate hikes this year. In one last hawkish move, the Fed has signaled that it could start reducing its excessive balance before the end of the year.
At first glance, these seem like some pretty significant obstacles to the precious metals market; however, there is still a lot of bullish sentiment in gold and silver early in the new year. Many analysts have pointed out that expectations that the Federal Reserve will be behind the inflation curve are beginning to shift to fears that an aggressive monetary policy will push the economy into a recession.
Once again, the Federal Reserve has painted itself into a challenging corner that should be good for gold prices the rest of the year.
Billionaire “Bond King” Jeffrey Gundlach made headlines earlier this week after saying he was in a “recession” in 2022. In a recent webcast, DoubleLine CEO noted that U.S. consumer confidence and yield curve data point to a potential economic downturn. “We are going to be more vigilant in recession than we have been in the last two years,” he said.
We can already see how inflation is starting to affect consumer activity.
On Friday, the U.S. Department of Commerce said retail sales fell 1.9% last month, surprising many economists. The biggest factor behind the dismal numbers was inflation.
Consumers are beginning to see their purchasing power erode, forcing them to buy fewer goods. Many analysts note that with rising commodity prices at the beginning of the year, current conditions may worsen before they get better.
In a recent interview, Axel Merk, President and Chief Investment Officer of Merk Investments, Kitco told News that gold is in a very solid position as an essential portfolio diversification tool, no matter what the Fed does this year.
“I’m very happy with where the gold is right now. I think gold has found a solid base here,” he said.
That’s it for this week. Happy New Year and I hope everyone has a great 2022.
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