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.

Last week, gold prices continued to hold steady around their 200-day moving average. The metal closed the week at $1,830.30 per ounce.

In an unexpected move, the Federal Reserve raised rates by 0.75% last week, after previously indicating it was going to raise them by 0.50%. This brought stock market indexes down into bear territory. The S&P 500 was down 23% and the NASDAQ was down 34% from their January highs, and the Dow was not far behind.

As a result, many analysts began to question whether the Fed’s more aggressive policy would tip an already slow economy into a recession. First-quarter gross domestic product was negative. To meet the definition of a recession, the second would have to come in negative as well.

But a recession isn’t our only worry. We are also dealing with stagflation, the economic stage that occurs when the economy slows while inflation remains high.

Stagflation puts the Fed between a rock and a hard place. CPI (consumer price index) inflation is currently at 8.6%, yet the Fed has raised rates to only 1.5%. That is a shortfall of 7%.

If analysts are worried about a recession at these levels, what will they think if the Fed raises rates by 0.75% at each of the three remaining meetings this year, bringing the total to 3.75%? And will that be enough to break inflation?

At these consolidated price levels, now may be an opportune time for investors to consider adding gold to their portfolios as a hedge against the looming dangers ahead.

Rick Andrews is president of Avant Capital Management.



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