By Andrey Dashkov, analyst, Casey Research
It’s coming. The economy is stressed, prices are soaring, and the world might be headed into a recession.
The Fed, as always, is behind the curve. It may not be able to handle what lies ahead.
But our readers had an early warning. Back in January, I anticipated that the U.S. economy might be more fragile than a lot of investors think… and the runaway inflation cycle was only getting started.
I said:
The Fed may be wrong about the U.S. economy being able to handle less stimulus with higher interest rates.
We could be looking at low growth and strong inflation, which has been running at multi-decade highs for months now.
It was true before the latest events in Ukraine. But now, the post-COVID recovery is at a bigger risk.
In a moment, I’ll tell you what lies ahead and how to prepare for the volatility that’s approaching.
The Oil Shock Will Take Months to Resolve
Soaring oil prices are making headlines. And for a reason. This week, crude oil spiked to over $120 per barrel.
Throughout the past 12 months, its price rose by almost 88%.
Some economists predict that it could go higher still. After all, there is a lot of uncertainty about the impact of the sanctions imposed on Russia, including the oil import ban recently announced by the U.S. and the U.K.
More countries could join the ban since this is the only way to impose economic damage on Russia. If prices are high and Russia can still sell its oil, it benefits from the high prices. To make sure that doesn’t happen, countries need to stop buying its oil.
But these bans have a side effect. The global oil supply will decline… which only amplifies the price swings. In other words, by the end of the year, oil could be much more expensive still.
And even if the conflict in Ukraine were to stop right now, the sanctions imposed against Russia could take months to lift. Which only supports my view that we’re looking at a full-blown energy shock.
What does this mean? Higher prices for pretty much everything that uses oil or natural gas as an energy input.
This is bad. But there’s another story developing right now, which makes the picture even grimmer.
Inflation Could Halt the Post-Pandemic Recovery
By itself, inflation isn’t such a bad thing. Prices tend to rise over time for most products.
But when it gets out of control, inflation could lead to an economic slowdown.
That’s where it gets tricky.
A slow-growing economy needs stimulus. That’s the mainstream attitude of most Western central banks.
And lowering interest rates is one of their preferred ways to achieve that.
Yet… lowering rates when inflation is high could lead to even greater inflation. No central bank would want that to happen.
They face a dilemma: a world that’s growing slowly and witnessing high inflation.
When growth stalls while prices rise, that’s called stagflation. And it’s the deadliest combination possible.
So it may turn out that central banks are powerless against stagflation and runaway prices… leaving investors to their own devices.
But there’s a way to handle such a situation.
Gold.
A year ago, I said that gold could touch $2,000 an ounce by the end of 2021. It was trading at $1,715.80 then.
Well, I was off by about three months. On March 8, gold soared to $2,039.50.
As of writing, it is trading at $1,988 – 15% higher than a year ago.
It could go higher still, and it remains one of the few “safe haven” assets that could protect your portfolio against stagflation.
For exposure to the yellow metal, look at the SPDR Gold Trust (GLD). It is a physically backed ETF (exchange-traded fund) that closely tracks the price of gold.
And as current events play out, I urge you to pay close attention if you aren’t already.
Good investing,
Andrey Dashkov
Analyst, Casey Research
P.S. In turbulent and uncertain times like this, you want to make sure you have multiple ways to hedge against stagflation.
While investing in gold is a safe bet, it shouldn’t be the only step you take.
That’s where Casey Research expert David Forest can help. He’s put together a presentation on 27 items you need to buy right now… and how to prepare for the months ahead.