The war in Ukraine has ignited a fire in the gold market. Prices have been trading above $1,900 for two weeks already.
But regardless of what happens in Eastern Europe, there are other reasons why investors should be looking to add precious metals to their portfolios. James Luke, a fund manager at Schroders said that along with the war in Ukraine, the change in monetary policy around the world represents another one serious threat to the global economy.
Luke said there is a risk that central banks tightening monetary policy will create stagflation, an environment of low growth and high inflation. If that happens, central banks will quickly reverse course, meaning that real interest rates will remain negative.
At the moment, the Fed is already concerned that the war in Ukraine could lead to even higher inflation. Fed Chairman Jerome Powell noted in his recent speech that the central bank plans to raise interest rates by 25 basis points in March. However, he assured that they will quickly evaluate and respond to incoming economic data. Officials will also come up with a plan to cut the central bank's balance sheet by nearly $9 trillion. Powell said the most important thing is to analyze how stable commodity price spikes are, explaining that any long-term shocks could affect inflation and affect economic growth.
