It’s official: Google searches for the phrase “How To Trade Gold” are now at their highest level on record ever.
This comes as no surprise, considering a survey by The Economist showed that 68% of people are increasingly concerned about the safety of their money in the bank as financial institutions around the world struggle to service their debts due to rapidly rising interest rates and liquidity challenges in the wider banking sector.
As interest rates continue to rise and liquidity continues to dry up – those concerns are only going to get bigger!
It seems incredible to think that just over a year ago, interest rates were still near zero.
Now 13 months later and after 10 consecutive hikes – the Federal Reserve has increased interest rates to 5.25% – the highest level since 2007.
Similarly, the Bank of England has now hiked interest rates 12 times to 4.50% – and they might not stop there!
Historically, every time Central banks have engaged in an interest rate hiking cycle, they have kept going “until something eventually breaks”. Which is exact situation they find themselves in, once again.
Back when interest rates were near zero, global banks scooped up record amounts of Bonds. But as traders know – when interest rates go up, bond values go down.
That’s one of the major reasons why a whole lot of banks now find themselves in deep trouble.
The rapid pace of rate hikes has meant that bonds held by banks have fallen in value and are now trading significantly below what they paid for them. Currently, the value of unrealized losses in bond portfolios held by some of the world’s most widely-recognized banks is close to hitting $2 trillion dollars – and that number is growing by the day.
So far this year, higher interest rates have resulted in the second, third and fourth largest bank failures in history ever, which have all occurred in past two months.
Economists are convinced that this is just the tip of the iceberg. Interest rate hikes typically take 12-18 months for their full impact to be felt in the economy – and we’re only 5 months in!
Meanwhile, the risk of a U.S debt default is greater than it’s ever been, adding yet another crisis to the growing list of current crises.
Right now, for traders and investors, there are very few assets they can turn to in a crisis – other than the oldest hedge in the world: Gold.
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 to them in the current economic climate.
The second most popular asset as revealed by the report, was Silver. Follow closely behind by Agriculture in third place.
When you consider the full magnitude of events that are currently unfolding from a global banking crisis, rising debt defaults to growing risks of a recession – then it’s not impossible to see why the current macroeconomic backdrop is fuelling a “perfect storm” for Commodities.
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!
Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions: