The Goldclub Review

Inflation and Precious Metals: 2022

Inflation has been on the mind of investors as governments decide how they should battle the inflationary pressures. Around the world, central banks are seeing large amounts of inflation. In the United States, Consumer Price Inflation reached a new decade high of 9.1% in June, which is the largest annual inflation rate increase since November 1981. Over the past 10 years, we have seen annual inflation rates of around 2%, so a jump to 9.1% is very large. 

Given the high inflation rate, we should expect the Federal Reserve to try to restore stability and lower the inflation rate. Before the inflation rate was released, the Fed was expected to release a half-point interest rate hike, but instead, they released a 75 basis point hike. Now, there are some expectations that the Fed could release a 1 percentage point rate hike during their meeting at the end of July. This would be the highest increase since the Fed started using overnight interest rates in the early 1990s. 

With the aggressive interest rate hikes comes an increased chance of recession. Many economists say there is a high risk of a recession within the next year. 

What does this mean for precious metals?

Precious metals have long been a hedge against inflation. They have intrinsic value, meaning inflation cannot change their real value as you cannot print more precious metals. Most precious metals drive their value from scarcity, as well as some industrial uses. Throughout history, we have also seen the symbolic value of gold remain high, as royalty use gold and other precious metals as jewelry, commemorations, and other meaningful purposes. There is no reason to think that its value will change anytime soon.

In times of unprecedented volatility, many investors choose to invest in precious metals for this reason. Physical gold, silver, and platinum will not feel the same type of shock from inflation or a recession, making these assets an important addition to an investor’s portfolio. For those looking to keep their wealth in a stable and secure fashion, precious metals are a safe, alternative investment.

Precious metals are tangible, meaning you can hold their value in your hand. Unlike stocks or other similar assets, physical metals are controlled by their holder.  If the economy and financial systems collapsed, the precious metals would still hold value. Although a true financial collapse is unlikely, investors have historically flocked to invest in precious metals as a safeguard. Since there is more demand, precious metal prices will increase and become a strong hedge against the devaluation of the dollar. 

In times like this where there is high inflation, along with the possibility of a recession, it is very smart for investors to diversify their portfolios with precious metals. They have the ability to protect wealth from unforeseen financial shocks. The prices are also expected to continue to climb, providing not only safe storage of wealth, but also a possibility to grow your wealth. 

Although gold and silver are considered safe-haven assets, the Fed’s decision to increase interest rates will keep pressure on their prices.  This is because the US dollar and gold prices have a negative correlation. As interest rates are pushed higher, it will increase the value of the US dollar, therefore decreasing the price of gold. This is why we have seen the price of precious metals drop in the past couple of months, and are now reaching 2-year lows. These price changes are partly due to consumer sentiment regarding investing in gold vs. other investment-yielding opportunities. A higher interest rate would lead to bonds and money market funds being more attractive. There are other factors that will affect the price of precious metals, so don’t expect this downturn to last forever.  

Diversification is key for every investor as it will help to keep assets immune from volatility. If you are considering buying precious metals to add to your portfolio, check out GoldClub Direct’s selection of the best gold, silver, and platinum bars on the market.




All Updates and Market info are provided as a third party analysis and do not necessarily reflect the explicit views of GoldClubDirect LLC.. and should not be construed as financial advice.