Gold should remain firm after World Bank officially warned of stagflation risk. This is first major global organization to accept stagflation. Independent forecasters like me had already said of stagflation risk since October 2021. World bank also slashed 2022 growth to 2.90%.
The war in Ukraine had magnified the slowdown in the global economy, which was now entering what could become "a protracted period of feeble growth and elevated inflation," the World Bank said in its Global Economic Prospects report, warning that the outlook could still grow worse. In a news conference, World Bank President David Malpass said global growth could fall to 2.1% in 2022 and 1.5% in 2023, driving per capita growth close to zero, if downside risks materialized.
The main thing from the world bank report (other than stagflation)
The report warned that interest rate increases required to control inflation at the end of the 1970s were so steep that they touched off a global recession in 1982, and a string of financial crises in emerging market and developing economies.
Ayhan Kose, director of the World Bank unit that prepares the forecast, told reporters there was "a real threat" that faster than expected tightening of financial conditions could push some countries into the kind of debt crisis seen in the 1980s.
(news source reuters news)
Our View on the World Bank View and Report
- The world bank has indirectly said that some nations can go bust if there is a sustained period of recession and/or stagflation. In the late 90s Indonesia witnessed a massive currency depreciation due to economic issues. Greece faced similar issues recently. Sri-Lanka is the first casualty in the post covid world. Nations with forex exchange reserves that cover less than one year of imports will be vulnerable to debt defaults and uncontrollable currency depreciation. The only option against such a future risk is to increase allocation to gold but only physical gold. Physical gold at the current price is not a bad long-term investment. Gold price falling risk is not more than ten percent (under the worst case scenario) in various Asian currencies.
- The pace of interest rate hikes by central bank will be the key driver for forex markets and bond The interest rate gap (US dollar versus rest of the world) will be one of the key factors dictating the trend of US Dollar Index and local currencies.
- Stagflation has been to a certain extent factored in by the traders. The period of stagflation is the key. How long stagflation will be there? The general consensus is for twenty-four months as on date.
- Lastly lets not compare to the 1970s. The world much more connected than the 70s. There was no virtual assets and cryptocurrencies in the 70s. This year marks the beginning of a move away from zero interest rate policy after more than a decade. Whether the next decade belongs to higher interest rates will be known only in the next twelve months. Central banks are still obsessed with zero to negative interest rates. US dollar is at the end of its shelf life in 2022 as compared to the beginning in the 70s. Gold will not give returns of stocks and crypcryptocurrencies nonetheless gold is still a must in everyone’s portfolio.
- The only risk to gold and silver price will be the unknown performance in case Federal Reserve raises interest rates by one percent more before Christmas (including next weeks meeting).
Gold will break free from the $1820-$1880 wider trading range and form a new range soon. Silver will also break free from $21.40-$23.00 wider trading range and form a new range soon. Day traders and jobbers remain on the sideline today.
COMEX SILVER JULY 2022
- Key support is at $2144.00 and $2181
- Key resistance is at $2245.000
- Silver has to fall below $2160 or break and trade over $2230 form direction.
NYMEX CRUDE OIL (July 2022)
- Key resistance is at $120.90 and $122.20
- Key support is at $116.50
- Momentum is very bullish.
- Crude oil will rise very quickly if it trades over $121.60 after the release of US weekly crude oil inventories at 8:00 pm Indian Time.
- Every large hedge fund has increased its price forecast for the next quarter.
- I am not a believer of bullish price forecasts by hedge funds. But in the short term, I will not be surprised if crude oil price overshoots to $145-$160 range.
- Do not buy naked crude oil future. Trade/invest with a corresponding hedge in options. Trading in naked crude oil futures can cause big losses on a bad day.
About the author
