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LAWRIE WILLIAMS: Volatile month sees enormous swings in gold, silver and equities

Maybe the long-predicted equities crash has already begun, although a lower than anticipated Fed interest rate rise at this week’s FOMC meeting might result in something of a recovery,  But, at the moment our warnings that rising inflation would likely be the principal market depressor is coming true – perhaps sooner than many had suspected.  The Russian invasion of Ukraine has certainly helped raise market uncertainty and also contributed to the inflation rises by the indirect effects on the supply chain resulting from the war itself and to the effects, real and projected, of sanctions on Russian exports.

The table below looks at the performance over the past month of the major equity indexes, precious metals, oil, natural gas  and the copper price - of all the base metals copper is considered the best guide to likely economic growth, or otherwise, ahead.  As can be seen nearly all have been marked down in the past month and year to date – equities and bitcoin particularly so, but the major precious metals too certainly have not been immune in April apart from palladium, where Russia is the world’s No.1 exporter and sanctions impositions could severely disrupt deliveries.

We had anticipated that perhaps gold and silver would emerge from an equities meltdown relatively unscathed – particularly the former – but had also warned that liquidity needs could force some investors and funds to unload good assets along with bad ones to stay afloat.  This happened the last time there was a serious market meltdown back in 2008, but gold investors should perhaps take comfort in that the yellow metal did recover quickly at that time and went on to attain new highs within the next 2-3 years.  Gold is up a little year-to-date, but down in April and ended the month hugely below its March peak.

Markets Performance past month and year to date (closing data)


Dec 31st ‘21

March 31st

April 30th

Change ytd











S&P 500





Nikkei 225 (Japan)





DAX (Germany)





FTSE 100 (UK)





Bitcoin (BTC)





Gold ($/oz)





Silver ($/oz)





Platinum ($/oz)





Palladium ($/oz)





Copper (c/lb)





Oil – Brent ($/bbl)





Natl. Gas ($/MBtu)






Markets have been nervous, though, ahead of the forthcoming U.S. Federal Open Market Committee (FOMC) meeting, which commences on Tuesday, at which the U.S. Federal Reserve will set out its likely more aggressive interest rate policy.  The nervousness arises because even the widely predicted 50 basis point interest rate increase, likely to be followed by the prospect of another similarly-sized rise at the June FOMC meeting, coupled with the ending of the Fed’s bond and mortgage security-buying programmes (Quantitative Tightening or QT) could possibly see U.S. equities markets dive further. 

U.S. businesses have become so used to several years of the Fed effectively supporting them with near-zero interest rates and with effectively pumping funds into the markets, that bringing all this to an abrupt end may provide a severe shock.  Perhaps they should be glad that Fed chair Jerome Powell is unable to mete out the kind of medicine Paul Volcker did in 1979/80, which certainly defeated inflation but drove the U.S. economy into a deep recession.  The current enormous debt level (estimated at around $30.4 trillion) the U.S. has built up has made the Volcker remedy, which saw interest rates rise to near 20%, financially untenable.  The costs of servicing such a high debt level at this kind of interest rate would rapidly bankrupt the country.

April has thus been a particularly volatile month for both equities and metals with this combination of factors affecting the equities markets which mostly fell back – particularly in the past week despite a couple of recovery attempts.  Indeed it has perhaps been surprising that there had not been even more market disruption earlier in the month given the potentially serious impact of the two principal driving forces which have come to the fore.  The two are also connected in that the one is seriously affecting the other as well, as we noted above at the start of this article.

As a result, very few asset classes are still in positive territory this year.  Gold is up a little under 4% since the end of December 2021, despite falling in price in April.  It had seemed to be starting to improve Friday, but the core Personal Consumption Expenditure (PCE) inflation index, which is the Fed’s preferred measure,  came in that day at a better than expected 5.2% annual increase and the gold price dipped back below $1,900 in later trade.  The overall PCE, which includes food and energy prices, came in at a worrying 6.6% annual rate though, up another 0.3% on the previous month’s figure,

Palladium, for which Russia is comfortably the world’s largest producer, bucked the trend accordingly and was up nearly 14%, but was pretty much flat in April.  Most base metals fell in price – even much-touted copper which is seen as something of a bellwether for the likely forward path of the economy.

Of the major stock indexes we have looked at most are down year-on-year, the only gainer being the FTSE 100 in the UK, which perhaps has benefited marginally from Brexit insulating it from some of the tribulations which have afflicted other European economies.  The biggest gainer of all we have listed was natural gas, for which Russia provides around 40% of mainland Europe’s supply, where prices have risen over 95% year-to-date.  Oil, where Russia is also a dominant exporter, particularly also to Europe, has risen in price by around 31.5%.  Not surprisingly in view of these statistics, the increase in energy prices has been the most significant component in the global rise in inflation.

The two principal overall market drivers are, of course, rapidly rising global inflation and the Russian invasion of Ukraine.  The first was already beginning to impact markets quite severely from late last year as nations were beginning to exit from the strictures which had been imposed to try and help control the spread of the Covid-19 pandemic. 

The Ukraine war has not only created huge geopolitical uncertainty in Europe in particular, but has led to some extremely stringent economic sanctions being applied to the Russian economy to try and persuade President Putin to end his attacks on Ukraine, with seemingly little effect so far. 

As Russia is a key global supplier of metal and energy commodities, foodstuffs and fertilizers, and Ukraine the latter two, the sanctions and war disruptions are having also an adverse effect on the economies of nations importing these products.  Supplies are being cut off and need to be replaced by more expensive alternatives from elsewhere assuming these are even available.  Even nations like the U.S., which are reasonably self-sufficient in most, but not all, areas are not immune from the inflationary pressures thus created.

The latest confirmation of the adverse effects of all this on the U.S. economy arose with the Bureau of Labor Statistics’ latest Consumer Price Index (CPI) and Producer Price Index (PPI) data announcements mid-month which came in at 8.5% and 11.2% year-on-year increases respectively, the worst for 40 years or more.  The big worries here are what steps will the U.S. Fed take to try and bring these excessive inflation levels, which still seem to be rising, down to its target of around 2%. 

The standard tools for combating inflation are to raise interest rates, and to cut back on any other accommodative bond and security-buying programmes.  But the big problem facing the Fed is that interest rates have been ultra-low (near zero) for so long and although QT on its accommodative bond and mortgage security buying programs is already starting to be implemented, many economists consider it as being too little too late. 

Even a succession of above-the-norm interest rate rises through the remainder of the year at the kinds of levels the Fed seems to be contemplating, continuing into next, may still be insufficient to even start to bring down inflation without also driving the U.S. economy sharply downwards.  American businesses have become far too used to easy money flowing from the Fed into the markets and ultra-low interest rates supporting them.  This has seen equity markets rise to levels which many consider unsustainable.  Some well-respected commentators are even predicting a serious recession within the next couple of years – or perhaps sooner.  The recent sharp equity price falls suggest it may have even already begun despite occasional partial recoveries. And as the world’s leading economy, what happens in the U.S. tends to set the pattern elsewhere in the world.

The resurgence of the Covid-19 pandemic in China, resulting in draconian measures to try and keep it under control, is also contributing to supply-chain worries and further resultant inflation fears.  This has been having an additional adverse impact on the markets.

In theory – in the writer’s opinion at least – the markets should be far more worried about inflation and potential Fed moves to bring it down than they appear to have been up until the past few days.  Such moves could see Federal Fund interest rate levels raised at a faster rate than at any time in the past three to four decades.  There is even talk of a 75 basis point rate increase being imposed at the forthcoming FOMC meeting, although the consensus opinion is still for the 50 basis point rise as suggested by Fed chair Jerome Powell.  But even this could be high enough to put an additional serious dent in equity market valuations, particularly if the Fed forecasts more of the same medicine to come during the remainder of the year, and beyond, which seems distinctly possible.  Equity investors in particular should perhaps be prepared for a difficult few months, if not years, ahead.

01 May 2022 | Categories: Gold, Silver, China, US, Russia, FOMC, Platinum, Palladium, Bitcoin, Brexit

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