This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Always expect the Fed to mess up, $2,175 as the next target, and palladium during the Russia-Ukraine crisis.
Buy gold, says analyst, because the Fed can be expected to mess up
Keith McCullough, founder and CEO of Hedgeye Risk Management, says that the economy is heading towards something they label a “Quad 4,” a state of emergency warranting government intervention. A Quad 4 means disappointing growth and inflation, year after year. McCullough expects growth and inflation to slow, causing a period of major earnings losses in the stock market.
And that’s all due to the Fed’s “too little, too late” approach to inflation:
If you go back to June 2020 when we started making the call that inflation was going to accelerate, it wasn’t until 12 to 18 months later that the Fed realized it wasn’t transitory. They’re playing catch-up. The Fed always screws up. Their policy is too tight, too late.
To McCullough, it’s a matter of when the Federal Reserve will start pulling back on its hiking cycle, essentially throwing in the towel on its battle against inflation. Recessionary risk has already been priced into the markets, even though we’ve only seen a single quarter-point rate hike so far. If the Fed sticks to their plan of six or seven more rate increases, recession will become reality, but McCullough predicts an early end to the Fed’s efforts.
This dovish turn by the Fed, says McCullough, will signal an economic recovery. Before that happens, though, we’ll likely see more suffering…
Since a stock market crash happens every time the Fed tightens during a Quad 4, McCullough’s firm are forecasting a minimum 20% downturn in equities. How bad could it get? McCullough says:
The longer the Fed stays vigilant, tightening into a slowdown, the faster stock prices fall. You’re going to really deflate asset prices.
How much could asset prices “deflate,” from a historical standpoint? Considering that the Shiller PE ratio is still double its historical average, a 50% drop in the stock market wouldn’t be surprising.
So how is McCullough’s team managing investment risk in this environment? Gold and silver are the only investments McCullough is entirely bullish on. Along with utility funds, these are the only safe haven investments McCullough thinks are suitable to ride out the crash ahead.
Bank of America: Gold could hit $2,175 this year, silver $30
In a Tuesday report, Bank of America analysts said gold’s recent price movements are a bullish development. Bank of America analysts believe $2,175 is a reachable target. In a worse-case scenario, gold will hit $2,078 instead.
A run to either $2,078 or $2,175 should mean plenty of opportunity. Bank of America recommends buying gold at $1,940 or below for maximum benefit. The team is, in general, very bullish on gold as well as silver against traditional safe-haven Treasury bonds and other commodities:
Gold vs. copper and gold vs. silver look like they are forming bottoms in favor of gold outperforming this summer. They just need one break higher to confirm. Gold vs. bonds and silver vs. bonds are breaking out to new highs suggesting precious metals are preferred, instead of bonds.
And gold won’t be alone… BoA analysts set their year-end price target for silver at $30/oz, a 26% increase from today’s silver price.
Bank of America is just one of many financial institutions expecting gold to surge over the next few quarters. S&P’s analysts said gold “showed promise” in the short-to-medium-term, while Wells-Fargo’s year-end target for gold remains $2,000-$2,100.
Palladium: peaks and beyond
Palladium has been seeing a lot of volatility. Going to $3,442 on March 7, passing the previous $3,000 high in doing so, then a pullback. Then back to $2,400, then down, then to $2,500. To avoid feeling the burden as if having to time the market, long-term palladium investors should simply remember to keep a long-term view.
Like gold, palladium isn’t a “make a quick buck” investment. It, like other precious metals, is a long-term investment meant to shield one from both crises and wealth erosion. Its wide industrial use obviously gives it greater upside, however, and that upside has been coming to prominence recently.
What exactly is palladium for?
Palladium is a vital component of pollution control devices for cars and vans. Its use is on the rise as governments, especially the Chinese government, tighten regulations to combat car pollution. It is also used as an alloying agent, for jewelry-making and in dentistry. The metal is also used to make surgical instruments, electrical contacts, musical instruments (transverse flute) and watches.
The Organization of Petroleum Exporting Countries, or OPEC, says there is no replacing Russia as a supplier. Commerzbank strategist Daniel Pressman said:
Russia accounts for 38% of global palladium production. Since other regions cannot compensate for supply cuts, the market risks falling into a huge supply shortfall.
Palladium is, in many ways, doing what silver believers would have liked the second-most popular metal to. But the industrial element, for better or for worse, always adds one or more unexpected twists to the mix. Instead of waiting for lower-priced entry points, novice and returning palladium investors should rejoice that they are seeing just how crucial palladium has become in the modern world.
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