Inflation, in economics, is defined as the general rising of prices and the fall of the purchasing value of money. By now, there’s no doubt that most people on earth have seen the adverse effects of inflation. With prices rising from gas to groceries, inflation hit its highest mark in 40 years in June of 2022, a massive 9.1%.
Central Banks Lose Credibility
Wall Street runs on moves made by the Fed (the Federal Reserve). If the Fed makes a positive movement, Wall Street stabilizes, and everyone’s happy. But when the US Central Bank makes adjustments Wall Street doesn’t see coming, the markets never like that, and they start to dip. For example, a 75 basis point shift, which the Fed made recently, without giving Wall Street a heads up, turns the markets upside down because they didn’t expect that sort of movement from the Central Bank.
Investing in the stock market has never been a sure thing. Corporate mergers and sell-offs, bankruptcies, failed tech, and many other reasons have always made investing in the stock market risky. Still, when the Central Banks lose their credibility, the markets react negatively, making investing much riskier.
Who Needs Forward Guidance?
Forward Guidance was a tool central banks used to communicate with the public about the likely course of monetary policy. Businesses and individuals use this information when choosing how and when to invest in commodities and/or the stock market.
However, as of July 22, 2022, that policy is no more. The ECB or European Central Bank came out this month and said, “We are not offering forward guidance.” Essentially the ECB wanted to raise rates in June, but because they had locked themselves into this forward guidance, they couldn’t do a rate increase. “It tied our hands.”
The fact that the ECB no longer wants to offer forward guidance doesn’t bode well for global markets. Now, investors won’t know whether or not to invest, what to invest in, or whether or not it’s too risky to invest right now. Instead, they’re left out in the cold.
Lynette Zang, Chief Market Analyst for ITM Trading, posted a recent video to her YouTube channel outlining why we should not take this move by the ECB lightly.
What happens when the central banks get surprised? Nothing good. Now, instead of setting forward guidance as their precedence for monetary policy, they will instead rely on data. ECB President Christine Lagarde said this about the ECB’s data reliance: “We are much more flexible; in that, we are not offering forward guidance of any kind. From now on, we will make our monetary policy decisions on a data-dependent basis; we will operate month by month and step by step.”
This vast shift in monetary policy has set the markets into a spiral of unpredictable movement.
Countries Invest Heavily in Gold
Recently countries like Argentina, Russia, and several others have added gold to their reserves. Russia, in fact, has been the highest buyer of gold for the last several years running, and the United States is the highest holder of gold per tonne with a massive 261.5 million troy ounces.
The reasons for countries to invest in gold may differ from why the individual citizen might want to consider gold a viable investment option, but the result is still the same. Gold is one of the best investment tools to help secure your wealth and ensure you still have purchasing power when the US dollar is worth much less than in previous years.
Governments know this, so most are stockpiling gold heading into 2022. However, those fiat currencies will weaken as inflation continues to squeeze the US dollar and other major world currencies like the European Euro and the Japanese Yen. This means that no matter how much you earn or have saved; if your assets are in the stock market or fiat currency-based savings like a 401(K) plan, you will take a significant hit as the US dollar and other currencies have less and less purchasing power.
Rainy Day Plans
When we’re young and start saving pennies, most people talk about ‘rainy day’ money. But our rainy days are here, and those pennies may become so worthless that they might as well be fire fuel.
How do you save for a rainy day and still ensure you have something to show when your fiat currency isn’t worth much to speak about? First, you invest in tangible gold and/or silver. Gold and silver can be bought in 1-ounce bars, with silver running at $20.26 an ounce and gold slipping to $1766.00 an ounce as of this writing.
You can also purchase gram pieces of both metals. Gram pieces are small and much more affordable for someone on a fixed income or tighter budget. You may also be interested in gold and silver coins or bullion.
To explore your options for investing in gold or silver and having precious physical metals in your possession to beat the inflation cycle with your wealth intact, please visit ITMTrading.com or contact your favorite gold/silver dealer or exchange.
This article was produced and syndicated by Wealth of Geeks.