The Federal Reserve ("Fed") continued to message from a full-on hawkish position, and market participants ramped up tightening expectations. Global growth expectations were lowered by the IMF (International Monetary Fund) and the World Bank. At the same time, one major Wall Street firm called for a significant recession by late next year just before a surprise -1.4% Q1 U.S. GDP (gross domestic product) posting.8 The Russia-Ukraine War shows no signs of resolution, and the effects of sanctions are spreading. China is in wide-scale COVID lockdowns, adding to the stagflationary risk by disrupting supply chains further and weakening growth.
Towards the end of April, earnings disappointments joined the geopolitical and economic concerns. Against the challenging hawkish Fed background, slowing growth and long faded global monetary and fiscal liquidity impulses, QT (quantitative tightening) will start in May, further undercutting liquidity and exacerbating any selling pressure. With inflation readings so elevated and pervasive, the U.S., the world's largest economy, may have no choice but to tighten into a recession. With the -1.4% Q1 GDP surprise posting, the bar for a recession may be lower than expected. In addition, China, the world's second-largest economy, may send itself into an economic downturn via widespread, ongoing lockdowns due to its strict zero-COVID policy.
Towards the end of April, earnings disappointments joined the geopolitical and economic concerns. Against the challenging hawkish Fed background, slowing growth and long faded global monetary and fiscal liquidity impulses, QT (quantitative tightening) will start in May, further undercutting liquidity and exacerbating any selling pressure. With inflation readings so elevated and pervasive, the U.S., the world's largest economy, may have no choice but to tighten into a recession. With the -1.4% Q1 GDP surprise posting, the bar for a recession may be lower than expected. In addition, China, the world's second-largest economy, may send itself into an economic downturn via widespread, ongoing lockdowns due to its strict zero-COVID policy.
Gold Bullion Consolidating
Gold bullion is currently consolidating the bullish flag breakout shown in Figure 1. After approaching its 2020 all-time high price of $2,064 per ounce, gold has pulled back to test support and Fibonacci retracement levels9 (blue dashed lines). Though the price volatility is elevated, our Gold Bullion Positioning Index has stayed in a narrow range, indicating that price volatility was more due to a lack of liquidity than selling pressure.
Figure 1. Gold Consolidating the March Breakout (2020-2022)
- Source, Sprott Asset Management
