Gold and silver, as well as copper, have suffered continued losses in response to central bank rhetoric, most importantly from the US Federal Reserve regarding their resolve to bring down runaway inflation through aggressive rate hikes. A development that continues to raise headwinds for investment metals through its impact on the dollar which has jumped 10% against a basket of major currencies this year, while US 10-year real yields have seen their biggest jump in decades, currently up 1.8% in 2022.
Demand for investment metals will likely remain challenged until we see the dollar and bond yields stabilizing, perhaps not until a deteriorating economic outlook forces a rethink or inflation fails to fall at the pace currently projected by the market. Since Federal Reserve Chairman Powell’s hawkish speech at Jackson Hole last Friday, forward inflation expectations have declined further with the inflation swaps out to five years now all pointing to inflation below 3%.
In a recent update, titled “Core inflation is unofficially dead” my colleague Peter Garnry highlighted why elevated food and energy prices will support higher than expected inflation for longer with climate change and the green transformation being inflationary in the years to come. A development that leads us to believe that in an inflationary environment the tangible world, which includes commodities, must increase dramatically, so investors should invest in the tangible world to offset the inflation risk in order to preserve wealth in real terms.