Year in Review: Inflation, Virus, Supply Chain Chaos

The Spotlight

5 minutes read

Dec 24, 2021

a man looking through a telescope on a pink Covid virus with US dollar signs on its spikes

A digest of the biggest news stories of 2021 and their meaning for the global economy and physical gold investors.

This year brought us plenty of surprising, serious, and sometimes challenging events. Some of them were quite mind-blowing:

A human brain wirelessly connected to a computer.

NASA’s Perseverance rover made oxygen on Mars.

The world’s first 3-D-printed school opened in Malawi.

Almost certainly, these events went unnoticed by many of us, because our minds were mostly gripped with worries about Covid, rising prices and not being able to receive our couch on time because of broken supply chains.

And it’s no surprise why. Inflation, supply chain issues, and the pandemic were all over the news throughout the year, with markets and investors ringing the alarm, and analysts warning that all these issues won’t go away in 2022.

To round off the year, we collected the key events and news stories of 2021 to see how they have affected the global market and physical gold buyers, and what they could mean for the year ahead.

Omicron variant sweeps the world

The news about this fast-spreading Covid variant dashed our hopes that the worst of the pandemic is over, disrupting holiday travel and pushing infection cases to new heights.

Faced by the ghastly prospect of new lockdowns and closed borders, some investors responded by selling their shares in travel and tourism companies, rattled by the possibility that this new wave could hurt the global economic recovery.

Yet, it’s still early to say how omicron will affect us and the global economy in 2022. According to Bloomberg analysts, if we get lucky, and if the new strain proves to be less deadly, we could get back to something like “pre-pandemic normal.” If not, well, then we could see the global economy slowing down.

Read our SPOTLIGHT to understand how omicron could affect the economy and the price of gold.

Inflation stops being “transitory”

That’s it. Fed chair Jerome Powell has finally admitted that this runaway inflation is not “transitory” after all.

The U.S. central bank has been stubbornly repeating its “transitory” mantra almost all year long, ignoring the big elephant in the room. But when inflation hit a 30-year high and investors started ringing the alarm, it became too hard to deny it.

So the Fed has come up with a new plan for 2022: to curb runaway inflation by gradually increasing interest rates. This means that it might become more expensive for both businesses and consumers to take out a loan, which can discourage spending and reduce the supply of money in circulation. This is supposed to lower inflation and bring back a red-hot economy to safer growth levels.

But, according to Bloomberg Economics, if the Fed increases rates three times next year and signals it’ll keep going, the U.S. might be facing a recession in early 2023.

For consumers, rate hikes could mean 3 things: higher mortgage rates, higher credit card interest rates, and higher savings accounts rates.

In Europe, too, inflation soared 4.9%, which is the highest level since 1997. Unlike the Fed, ECB President Christine Lagarde said there will probably be no rate hikes next year, but warned that inflation might last longer than expected.

Read our SPOTLIGHT to see how higher inflation could affect the price of gold.

Strained supply chains are causing a lot of trouble

Just about anything that could go wrong with the global supply chain has gone wrong over the past two years: there has been a pandemic, volatile swings in consumer demand, labor shortages, and even a giant container ship stuck in the Suez Canal.

On top of that, the global chip shortage has slowed the production of a wide range of goods, from cars to smartphones.

The situation became so bad in the summer that several car manufacturers were forced to halt production at some of their plants, while Apple reportedly had to slash the number of iPhones it produced in 2021.

Now there are first signs that these pressures could be starting to ease. However, shipping, manufacturing, and retail executives say they don’t expect a return to normal until next year, and that cargo delays are likely to continue if new Covid outbreaks disrupt key distribution hubs.

Read our SPOTLIGHT to learn more about the supply chain disruptions and what they could mean for the gold price.

Economic risks coming from China’s real estate bubble

Finally, economic risks posed by the crisis in China’s economy and the real estate sector sparked worries among investors that the situation could spill into the global economy.

The infamous Evergrande crisis has been all over the news in the past few months as China’s sprawling real estate giant struggled to pay down its massive $300 billion debt. 

On December 10, Evergrande Group was declared by Fitch Ratings to be in default, meaning that the company has formally defaulted but had not yet entered into any kind of bankruptcy filing or another process that would stop its operations.

Some analysts anticipate that the problems encountered by Evergrande and other Chinese property developers will hurt China’s long-term economic growth but are expected to have a limited effect on the financial markets.

But Bloomberg’s Markets Live Global Survey showed that investors still fear that contagion linked to China’s economic situation could hurt economic growth and the housing market.

Read our SPOTLIGHT to see what could happen if China’s housing bubble bursts and how it could affect gold.

What to watch out for in 2022?

In short, 2021 was a challenging year for many people, but we are hopeful that 2022 will be better.

The year was full of monumental events with global effects, including the ongoing Covid pandemic and the world getting used to a new reality of being short of everything, from computer chips to food products.

But at the same time, 2021 was also a reminder that our world is more connected than ever. Every time you checked the news, you could see how seriously something happening on the other side of the world could affect you at home, be it a huge container ship stuck in the Suez Canal or economic problems in China.

It’s still early to say what will have the biggest impact on the global economy in 2022, since the past two years have shown that it’s better to expect the unexpected.

But as we’re getting ready for a fresh start, there’s a couple of events that are worth keeping an eye on next year:

  • Omicron and its impact on economic growth.
  • Inflation, which risks staying too high for too long.
  • Major political elections (French presidency, US midterms, …)
  • China’s housing bubble that might burst.
  • Global political instability, including tensions between China and Taiwan.

Since all these events have the potential to upset global economies and markets, we will keep our finger on the pulse to see how they can affect your investments and precious metal savings.

But for now, let’s make a wish for 2022 🌠 .


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