Inflation shows no signs of cooling – What does that mean for commodity prices? [Video]

As we head into the last week of May and into the final month of the second quarter – a global banking crisis, credit crunch, stickier-than-expected inflation and rapidly rising recession risks are now emerging as the four biggest macro themes driving the Commodity markets.

Last week, Minutes from the May Meeting confirmed the stubbornness of high inflation is dividing the Federal Reserve over how to manage interest rates in the coming months, leaving the outlook for the Fed’s policies cloudier than at any time since it began raising rates back in March 2022.

Although prices are stabilizing, inflation remains well above the Fed’s 2% target – and that has Fed officials increasingly divided over their next move.

Since the collapse of several prominent banks in the United States and Europe – traders have been anticipating that the Federal Reserve will cut rates by the end of the year. 

But those hopes were squashed by the May FOMC Meeting Minutes, showing that is unlikely to happen soon.

The Minutes revealed that a number of top Fed officials backed the need to continue raising interest higher as ‘insurance’ against inflation. However, there’s a problem! Current economic and financial market conditions can't handle anymore rate hikes.

After 10 consecutive hikes – the Federal Reserve has increased interest rates to 5.25% – the highest level since 2007 – and well into restrictive territory.

The further we go into restrictive territory, the more likely it becomes that we begin to see black swan events – just like we have seen recently with the second, third and fourth largest bank failures in history, which have all occurred in past two months. 

Those hikes have also pushed mortgage rates up by more than double. Credit card debt has surpassed $1 trillion for the first time ever. Bankruptcy filings are at their highest level since 2008. While overly inflated assets such as real-estate and equities are beginning to wobble.

Most economists have long felt that the Fed has gone one rate hike too far. Now with odds increasing of another rate hike coming next month – the biggest risk is that the Fed may overdo it.

During times like these, finding a safe place to store money becomes particularly important, which would explain why Commodities are everyone’s favourite trade once again!

According to a report released by the International Monetary Fund – Gold has become the world's number one asset class of choice for those seeking protection, diversification and high returns on offer in this current economic climate.

The second most popular asset as revealed by the report, was Silver. Follow closely behind by Agriculture in third place.

Whichever way you look at it, one thing is clear. The case for Commodities in a well-diversified portfolio has never been more obvious than it is right now. Any substantial pullbacks should be viewed as buying opportunities because prices won't stay low for long!

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions: