Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

2nd Quarter | 2022

Market insights and analysis

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Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

A historical conundrum

Last week, gold prices declined before finding support at $1,700.00 per ounce. The metal closed the week at $1,722.60 per ounce.

For the first time since the 1987 U.S. stock market collapse, the Federal Reserve is pursuing a different approach to coming difficult economic times. Instead of lowering interest rates and increasing the money supply, as it has done for the last 35 years, the Fed is raising interest rates and decreasing the money supply.

This, of course, is being done to combat the high inflation in the U.S. economy. Choosing to fight inflation over recession is the conundrum of “stagflation”: Trying to solve one side of the problem only exacerbates the other side.

However, slowing down overall demand does not affect the necessary demand for food and fuel, which will increase during the coming winter. The shortages of food and fuel will become more acute, and their prices will continue to rise, pushing out discretionary spending.

Many are already starting to feel the pinch. Bloomberg reports that 20 million U.S. homes are behind on energy bills. Real estate news source GlobeSt.com says that 40% of small businesses failed to pay their August rent, with 45% saying their rent is now 50% higher than before COVID. According to a new estimate from a poll of over 4,300 companies, 47% of small businesses could be closed by fall.

The Fed might reverse course after the November elections, but by then it may be too late to turn things around, and the Fed might lose the battle on both fronts. Gold remains a safe haven.

Rick Andrews is president of Avant Capital Management.



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