Weekly Digest: Big Fed Hike, Recession Fears, Gold Could Soar


10 minutes read

Jun 16, 2022

front of US federal reserve building where the biggest interest rate hike since 1994 was announced by the Fed

16/06/22: Fed announced a historic rate hike, a U.S. recession is looming, bitcoin is plunging, U.K. economy is shrinking, China’s contact with aliens. And more.

Investment news

Gold is down 0.98% on the week, but finishes a negative few days on more positive notes. Follow today’s prices to see how the Fed’s announcement of a historic rate hike will impact the price of gold and precious metals.

Here’s how the price of gold, silver, platinum, and palladium have changed over the past week:

a table showing how the prices of gold, silver, platinum, and palladium have changed over the past week.

Is gold about to shine? Gold’s negative performance over the past few months was likely due to a “wealth shock” which is now over, announcing potential positive performance for the yellow metal, according to Goldman Sachs. (Bloomberg)

Economists at Goldman Sachs explained that the ongoing food and energy crisis and the rising U.S. rates have put emerging market currencies under pressure and created a negative wealth effect for gold.

So, will gold go up in 2022?

According to Goldman Sachs, yes: “The wealth shock appears to have peaked, and we expect a rebound in emerging market gold demand in the second half of the year,” the analysts said. “In the absence of a large liquidity shock, we view current gold price weakness as a good entry point.”

Read our Spotlight if you want to know if gold is a good investment for 2022.

Historic. On Wednesday, the U.S. Federal Reserve raised its benchmark rate by 0.75% (75 basis point) to combat rising inflation. It’s the Fed’s most aggressive increase since 1994. (CNBC)

The Fed’s benchmark should end the year at 3.4%, 1.5% above the last March estimate. Fed officials also announced a sharp cut to their outlook for 2022 economic growth, with only a 1.7% gain in GDP, down from their 2.8% outlook from March.

Want to understand how interest rate hike really impact gold?

❄️ Recession is coming. After the Fed’s momentous interest rate increase, Wall Street analysts are seeing a recession looming for the U.S. (Bloomberg)

After believing in the Fed’s ability to manage a “soft landing” for the economy, Wall Street economists think a contraction next year will be difficult to avoid. In his note Wednesday, Wells Fargo’s Jay Bryson changed his base scenario for a “mild recession”.

The Federal Reserve is going to hike interest rates until policymakers break inflation, but the risk is that they also break the economy,” Ryan Sweet, Moody’s Analytics head of monetary policy research, said in a research note. “Growth is slowing and the effect of the tightening in financial market conditions and removal of monetary policy have yet to hit the economy.

According to Bloomberg Economics, while not on the radar a few months ago, a downturn is now “close to a three-in-four probability” for early 2024.

Here’s what other analysts have to say about a possible recession.

Global markets took a hammering this week as investors increasingly (and rightfully) expected a much more aggressive rate hike from the Fed than previously planned. (Guardian)

Since its January peak, the S&P 500 index, which is often used to measure the health of the US stock market, has fallen 20% and the Nasdaq index (tech stocks) 30%. Placing them in near, or full, bear market territory.

European Central Bank announced on Wednesday it will create a new tool to address fragmentation risk and help indebted eurozone members after bond yields surged. (Reuters)

Euro sign outside of European Central Bank, ECB at night where the decision to create a new tool to help indebted member states was made.

Italian 10-year yields surged to 4.27% on Tuesday, their highest since early 2014 and 250 basis points more than the German 10-year bonds, the euro zone's benchmark, a level that could eventually turn into a problem for the country, according to economists.

“The pandemic has left lasting vulnerabilities in the euro-area economy which are indeed contributing to the uneven transmission of the normalization of our monetary policy across jurisdictions,” the ECB said in a statement.

The new tool will help combat unwarranted jumps in euro-area bond yields as markets fear the prospect of the first ECB interest-rate increase in more than a decade.

Bitcoin takes the plunge 🤿. The price of the leading cryptocurrency dropped close to $20,000 Wednesday as most cryptocurrencies sank deeper into the red. (CNBC)

The plunge comes as investors increasingly fear the impact that rising inflation and aggressive rate hikes will have on the crypto market. The potential liquidation of major crypto trading and lending firm, Celsius, also ranks high among investors' concerns, as it could bring down other major players.

Fears are mounting over the state of the UK economy after GDP shrinking and sharp sell-off in markets. (Guardian)

After the UK economy unexpectedly shrank in April, with a 0.3% monthly drop in gross domestic product (GDP) and a previous 0.1% drop in March, the country is facing growing risks of a recession.

Such fears, along with concerns over soaring inflation, slowing global growth, and a drop of the British Pound to its lowest level against the dollar since the onset of the Covid pandemic also triggered a large sell-off in financial markets.


bill gates sitting in a chair at a conference with notes to talk about cryptocurrencies

Not a fan. Bill Gates expressed that he is not a fan of cryptocurrencies or non-fungible tokens and that he doesn’t personally own any. (CNBC)

Speaking at a TechCrunch talk on Tuesday, the billionaire and Microsoft co-founder expressed his view that both crypto and NFTs are “100% based on greater fool theory,” referring to the idea that overvalued assets will go up in price when there are enough investors willing to pay more for them.

Here is him taking a shot at the famous Bored Ape Yacht Club NFT collection:

Not to start a beef with Bill, but we’ll politely disagree on this one. We believe that crypto and gold can actually be complementary assets in a diversified portfolio.

The Fed is losing control, and if it doesn’t catch up soon, it risks sending the global economy towards recession or further inflation, says Mohamed El-Erian. (Bloomberg)

The notion of a central bank consistently chasing inflationary developments, running out of good policy options and, in the process, intensifying economic and financial volatility would not be uncommon in a developing country lacking institutional credibility and maturity. It is highly unusual, and particularly distressing, for the central bank that is at the center of the international monetary system,” says El-Erian.

According to him, the U.S Federal Reserves are “deepening of a lose-lose policy dilemma that is largely of its own creation — that is, slam on the policy brakes to fight inflation at the cost of a consequential risk of recession or tap the brakes more gently and risk persistently high inflation well into 2023.

Read our SPOTLIGHT on how to fight inflation according to central banks.

What else is happening

Emmanuel Macron french president talking at an event next to a table

Macron expresses Ukraine needs a strong signal from the E.U, a day before the European Commission makes a recommendation on Ukraine's status as an EU candidate. (Reuters)

"We are at a point when we need to send clear political signals, us Europeans, towards Ukraine and its people when it is resisting heroically," Macron said

"We will do everything to stop Russia's war forces, to help the Ukrainians and their army, and continue to negotiate," he told French and NATO troops at a military base in Romania.

After the French leader has been criticized for his perceived soft line, French officials have recently sought to strengthen his public messaging.

The WHO has announced it will hold an emergency meeting to decide whether the current spread of the monkeypox virus constitutes a public health emergency of international concern. (Bloomberg)

The magnitude of the outbreak poses a real risk,” said Hans Kluge, regional director of the WHO for Europe. “The longer the virus circulates, the more it will extend its reach and the stronger the disease’s foothold will get in non-endemic countries.

Europe remains the epicenter of this outbreak, with 25 countries reporting 85% of the total cases, which reach over 1,500 so far.

When coronavirus was declared a PHEIC (Public Health Emergency of International Concern) by the WHO in January 2020, there were already thousands of reported cases around the world and over 200 deaths in China.

And finally…

👽 Contact? China has announced its giant telescope may have detected signals from alien civilizations. (Bloomberg)

a picture of the Milky Way where alien civilizations are sending signals to chinese telescopes.

In September 2020, Chin’s giant telescope Sky Eye officially launched a search for extraterrestrial life. After detecting two suspicious signals in 2020 on data from 2019, the team found another uncommon signal in 2022 from data of exoplanet targets, said Zhang Tonjie, chief scientist of an extraterrestrial civilization search team co-founded by Beijing Normal University, the National Astronomical Observatory of the Chinese Academy of Sciences and the University of California, Berkeley.

But, with no indication why, the report stating the discovery has since then been removed from the Science and Technology Daily website, the official newspaper of China’s science and technology ministry...

See you next week!

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