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LAWRIE WILLIAMS: No respite for investors as gold, equities and bitcoin all fall

Yesterday has to have been a particularly gloomy day for investors in almost all asset classes with across-the-board falls in value in nearly all asset classes.  Recession talk must be beginning to come home at last!  True, pgms and copper did show some signs of improvement but all have had extremely patchy price performances of late so a little improvement in these will not have been much comfort.  The oil price also moved higher, but higher energy prices are a significant contributor to inflationary trends which are a principal cause of weakness elsewhere.

Gold fell back below the significant $1,820 level and slipped a little further in early European trade this morning.  Equities reversed the upwards trend of the previous few days and bitcoin (BTC) dropped back below the $20,000 level again, with the other cryptocurrencies also mostly declining too.  We attribute all this to further market consideration of the latest indications from U.S. Fed statements and U.S. data releases which, in our opinion, all seem to point to a continuation of a more aggressive Fed anti-inflation policy at the next FOMC meeting at the end of the current month.  This is certainly likely to be the case if our current view that the next inflation and employment figures to be released will confirm that inflation remains rampant and is continuing to have an adverse effect on the U. S. economy. 

The inflationary pressures afflicting the U.S. are already apparent globally and central banks in many other countries are taking similar tightening measures to the U.S. Federal Reserve.  These will be having similarly ineffective impacts on inflation rises, given that, in virtually all cases, the principal inflation drivers of high energy and food prices are almost entirely outside of their means of direct control.  There are likely to be some exceptions with some countries able to negotiate discounted energy and food prices with Russia, which the latter will no doubt be using as leverage to break the imposed sanctions with some wavering nations.

Principal among the non-aligned nations likely to be taking advantage of discounted Russian supplies are the highly populated China and India which between them account for around 36 percent of the global population.  Overall Asia, which also includes most of the former Soviet republics, comprises well over half of the world’s population, so Russia may feel it has an advantage here.  Much will thus depend on the amount of pressure the West can bring in enforcing Russian trade sanctions where it may well be facing a losing battle.  Certainly countries outside Asia facing starvation and energy deprivation will be sorely tempted to deal with Russia regardless.

Overall though, the apparent weakness across almost all asset classes in the main Western markets suggests that fears of a global recession are well and truly prevalent at the moment – and rightly so in our opinion.  Some markets are already in the stagflation phase brought on by the high, and seemingly still rising costs of energy, precipitated by the Russia-Ukraine War.  This doesn’t necessarily lead on to recession, but the signs are already ominous.   The UK, for example, is already probably in a technical recession as defined as two successive quarters of negative GDP growth and the U.S. may be heading that way.  European nations seem to be struggling too, particularly given their reliance on Russian supplies of oil and gas which they are mostly desperately trying to extricate themselves from amidst fears that Russia may arbitrarily cut off these supplies anyway as it generates new markets elsewhere.

UK Prime Minister Boris Johnson says we will all have to make sacrifices to reign in Russian expansionism.  The inevitable result given much of the West’s recent reliance on Russian export trade of key commodities has to be extremely difficult economic times.  It may take us some time to come out of this regardless of the progress of the Ukraine War.  Hold tight for some difficult times to come.

29 Jun 2022 | Categories: Gold, China, Russia, US, FOMC, Bitcoin, India, UK, inflation, stagflation

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