What do rate hikes mean for commodity prices? [Video]
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The Federal Reserve made its biggest rate hike in 22 years on Wednesday with a 50-basis point increase – the most aggressive step yet in its fight against the highest inflation seen in four decades.
This is the first time since 2006 that the Fed has implemented rate increases at back-to-back meetings as rapidly surging inflationary pressures continue to become an overriding concern.
Traders now expect the central bank to continue raising rates aggressively with further 50 basis point hikes in the coming months. That has prompted concerns about “stagflation” – a period of high inflation accompanied by a slowdown in economic growth – and eventual recession.
Elsewhere this week, The Bank of England also followed in the Fed’s footsteps by raising interest rates to their highest level in 13 years.
The Bank expects UK inflation to rise above 10% as a result of the Russia-Ukraine war, lockdowns in China and soaring energy prices. It also warned that the economy will slide into recession this year.
As traders very well know – that both scenarios, whether that’s persistent inflation or a recession, ultimately present an extremely bullish backdrop for commodity prices.
So far this year, 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains already – And this is just the beginning!
To quote Goldman Sachs “we're still only at the first inning of a multi-year, potentially decade-long Commodities Supercycle”.
Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:
Author
Phil Carr
The Gold & Silver Club
Phil is the co-founder and Head of Trading at The Gold & Silver Club, an international Commodities Trading Firm specializing in Metals, Energies and Soft Commodities.
