With the Fed committed to fighting ongoing inflation, Société Générale is advising investors to maximize their commodity exposure, including exposure to gold. In a recent report, bank analysts said they see the yellow metal breaking out within the next three months. “High inflation and lower rates suggest that gold will hit record highs. Indeed, we expect gold to reach $2,200/oz in 2Q.” To control inflation, Fed officials need to raise interest rates substantially. However, St. Louis Fed President James Bullard said they may not be as “behind the curve” as it appears.
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Hold commodities and half of it should be in gold as economic risks rise – Société Générale
The Federal Reserve is embarking on an aggressive monetary policy tightening cycle and one international bank is advising investors to maximize their commodity exposure, including exposure to gold.
In a report published by Société Générale, the bank said it currently holds a maximum allocation of 5% of gold in its Multi-Asset Portfolio, representing half of its commodity exposure. The comment comes as gold prices continue to consolidate between $1,900 and $1,950 an ounce; however, SocGen analysts expect to see a break out to the upside within the next three months.
“High inflation and lower rates suggest that gold will hit record highs. Indeed, we expect gold to reach $2,200/oz in2Q,” the analysts said.
Looking at the other half of its commodity exposure, SocGen analysts said they prefer rotating out of the energy sector and into base metals like copper. The bank also likes silver as an industrial metal.
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A “recession shock” is coming, BofA warns
The macro-economic picture is deteriorating fast and could push the U.S. economy into recession as the Federal Reserve tightens its monetary policy to tame surging inflation, BofA strategists warned in a weekly research note.
“‘Inflation shock’ worsening, ‘rates shock’ just beginning, ‘recession shock’ coming”, BofA chief investment strategist Michael Hartnett wrote in a note to clients, adding that in this context, cash, volatility, commodities and crypto currencies could outperform bonds and stocks.
The Federal Reserve on Wednesday signalled it will likely start culling assets from its $9 trillion balance sheet at its meeting in early May and will do so at nearly twice the pace it did in its previous “quantitative tightening” exercise as it confronts inflation running at a four-decade high.
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Fed’s Bullard says interest rate policy is ‘behind the curve,’ but it’s making progress
The Federal Reserve needs to raise interest rates substantially to control inflation but may not be as “behind the curve” as it appears, St. Louis Fed President James Bullard said Thursday.
One of the Federal Open Market Committee’s most “hawkish” members in favor of tighter policy, Bullard said a rules-based approach suggests the central bank needs to hike its benchmark short-term borrowing rate to about 3.5%.
However, he said bond market adjustments to the Fed’s more aggressive policy, in which yields have surged higher, suggest rates are not that far askew.
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