Gold is testing a key pricing level and gaining serious momentum heading into the Easter weekend thanks to yet another spike in inflation and comments from Bank of America which say it now expects a recession to hit. The yellow metal traded at a daily high of £1,520/oz ($1,975/oz) yesterday (Tuesday), after surging by more than £19 ($22) on news that inflation has smashed through another milestone to achieve a four-decade high.
The latest figures, issued by the U.S. Consumer Price Index (CPI) show inflation is now running at a higher-than-expected 8.5% – something the White House describes as ‘extraordinarily elevated’ and says can be partly attributed to the war in Ukraine causing oil and gas costs to rise. The high level of inflation is significant, as it comes just before the Federal Reserve begins an aggressive program of rate hikes in order to push inflation back down.
Katherine Judge, an economist with CIBC Capital Markets believes the Feds will now double down on their plan, saying “In order to achieve on-target inflation in 2023, the Fed will be inclined to raise rates by 50bps at the next FOMC, followed by a string of 25bps hikes at subsequent meetings, before pausing temporarily in Q4.”
No matter how the Federal Reserve decides to play its hand later in the year, what’s clear right now is that runaway inflation is causing a serious cost of living crisis for both businesses and consumers and leaving investors uncertain as to what lies ahead. In this environment, the gold bulls have a commanding advantage and record new price levels appear to be just around the corner.
What’s especially troubling for markets – and great for gold prices – is that Bank of America this week added its voice to those expecting a recession to hit. In a stark warning about what lies ahead, its strategists described the current geopolitical situation as “’Inflation shock’ worsening, ‘rates shock’ just beginning, ‘recession shock’ coming.”
Pointing out that the UN food price index is now at its highest ever level following a whopping 13% increase last month, the Bank believes that all signs now point to a recession due to the persistent, and growing, levels of inflation. It said, “Inflation causes recessions … Late-60s recession preceded by consumer price inflation, 1973/4 by oil/food shocks, recession of 1980 by oil, 1990/91 by CPI, 2001 by tech bubble, 2008 by housing bubble; last dominos to drop in terms of recession expectations is higher yields & weaker dollar, and steeper yield curve and banks/consumer keep falling.”
Analysts believe that the S&P 500 could be severely hit, with an 11% loss expected between now and the end of the year.
