Top Stories This Week: Gold Bounces Back as Fed Hikes, Recession Questions Loom
The US Federal Reserve met for two days this week, with market watchers keenly awaiting the outcome.
The central bank was widely expected to announce an interest rate increase, and that’s exactly what happened — it bumped the key rate up for the first time since 2018, raising it by 25 basis points.
A number of top indexes declined in the immediate aftermath of the news on Wednesday (March 16), including the S&P 500 (INDEXSP:.INX) and the Dow Jones Industrial Average (INDEXDJX:.DJI).
They were quick to perk back up, and Gareth Soloway of InTheMoneyStocks.com told me Fed Chair Jerome Powell’s comments after the meeting helped soothe some initial concerns.
“I think the bottom line is the Fed is taking inflation seriously … they’re kind of letting the market know that yes they’re going to attack inflation, but we’re going to try not to overdo it” — Gareth Soloway, InTheMoneyStocks.com
Gareth’s main takeaway was that the Fed is serious about curbing inflation, but is also aware of the risks of going too far. Those risks of course include a recession, and despite the calming words from Powell, this week’s actions from the Fed have sparked worries about whether this could be in the cards.
That’s a valid concern, according to Gareth. He said we should have a better idea of what’s to come in the second half of the year; however, at the moment he does see a decent risk of recession by Q4 or early 2023.
For its part, gold experienced both peaks and troughs this week. The yellow metal started the period in the US$1,950 per ounce range before pulling back on Tuesday (March 15) and Wednesday to trade as low as US$1,907.
Once the central bank’s rate hike announcement was out, gold picked back up, but it had lost some strength by the end of the week. The metal was at about US$1,920 at the time of this writing on Friday (March 18) afternoon.
With the Fed meeting in mind, we asked our Twitter followers this week how many rate hikes they’re now expecting to see in 2022. By the time the poll closed, most respondents said one to two, with three to four coming in second place. It’s worth noting that Fed officials have “penciled in” six further bumps.
We’ll be asking another question on Twitter next week, so make sure to follow us @INN_Resource and follow me @Charlotte_McL to share your thoughts!
With so much going on right now, it’s tough to figure out where to focus. But we’re going to wrap up with nickel, which has had some very interesting recent price action.
The metal surged last week to a record US$100,000 per tonne, a massive price increase of 250 percent. Various factors were involved in the unprecedented gain, but chief among them was a short squeeze situation. The London Metal Exchange (LME) ultimately halted trading and canceled transactions made during the turmoil.
“What a debacle. The LME is not doing itself any favors” — Ole Hansen, Saxo Bank
The exchange then attempted to restart trading midway through this week, with price limits in place to control volatility; a technical issue forced yet another halt, but nickel was finally back in action by Thursday (May 17).
The story isn’t over yet though — now experts are raising questions about how the exchange handled the situation, including if it was right to cancel trades and if the price limits are a good idea. This will be a situation for investors to watch closely, especially if there are any supply issues with number three nickel producer Russia.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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