What’s Next For Precious Metal Prices As Inflation Alarms Get Louder?

Inflation and Monetary Policy

Data released this week, showed Consumer Price Inflation in the U.S surged to a new four-decade high of 9.1% in June – its largest annual increase since November 1981 and a significant jump above economists’ estimates for an 8.8% increase.

The data will enviably spur the Federal Reserve’s efforts to restore price stability, which intensified last month after officials abandoned previously-laid plans to deliver a half-point interest rate hike and instead implemented the first 75 basis point increase since 1994.

In the lead up to this week’s inflation data release, traders were already pricing in another 75 basis-point rate hike at the Fed’s upcoming July policy meeting in just over two weeks. However, this week’s reading has completely changed everything – intensifying pressure on the Fed to respond with an “historic super-sized” 100 basis-point rate hike this month.

Those odds hardened on Wednesday after a long list of leading Wall Street banks increased their rate hike expectations, signalling a larger move was now in play.

Goldman Sachs and Nomura both shifted their forecasts on Wednesday to a 100 basis-point rate hike from 75 basis points previously. JP Morgan, Wells Fargo and Bank of America also modified their calls to a 100 basis point hike this week.

Elsewhere on Wednesday, the Bank of Canada surprised the markets with a full percentage point rate hike amid fears that four-decade-high inflation is becoming entrenched.

In total, more than 60 central banks faced with unprecedented inflation have now joined the global race to hike rates aggressively at any at any cost necessary.

Is the Recession Coming?

This is return as increased the odds of a recession to 85% – with Economists warning that such a fast pace of large increases could push the global economy into recession. A handful of Economists predict “significant risk” of a recession starting this year, while others see it starting by early next year.

Historically, 11 of the last 14 major central bank rate hike cycles since World War II have been followed by a recession within the next 12 months.

Will That Be The Same Again This Time Around?

Only time will tell, however one thing we do know for certain is that both scenarios, whether that’s persistent Inflation or a recession, ultimately present an extremely lucrative backdrop for precious metal prices. It goes without saying that this is a traders’ market packed with endless opportunities to capitalize on the short-term macro-driven volatility… And that’s the optimal strategy right now!

Commodity Price Forecast Video for 15.07.22

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