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As economic data disappoints, investor uncertainty is causing market volatility.On Thursday, the Commerce Department released its estimate of first-quarter Gross Domestic Product, revealing a growth rate of 1.6%—significantly below the 2.3% consensus forecast.
Stock prices declined in response to the news, but gold and silver markets recovered slightly from earlier-week lows.The recent dip in metals markets could be short-lived, as inflation concerns and economic struggles are expected to continue.
Meanwhile, the Biden administration is trying to put a positive spin on the underwhelming GDP data. Treasury Secretary and former Fed chair Janet Yellen argues that the economy is stronger than the data suggests and believes future revisions will reflect improved GDP growth.
Critics contend that real economic growth may be lower than reported due to high inflation rates. The official GDP figure incorporates an inflation adjustment, but it may downplay actual living costs, particularly in housing, food, and energy.
Even the Federal Reserve’s preferred inflation gauge indicates rising price pressures rather than declining ones. On Thursday, the latest core Personal Consumption Expenditures (PCE) index, which excludes food and energy prices, was released.
It showed a surge from 2% in the fourth quarter of 2023 to 3.7% in the first quarter of 2024, significantly exceeding economists’ predictions and mirroring recent trends in inflation reports.
Persistently high inflation readings are casting doubt on widespread expectations of Fed rate cuts this year. The Biden administration and its supporters within the central bank now face the challenge of navigating the political implications of the economic narrative.
The Biden administration hopes to receive a boost from the Federal Reserve this summer as it approaches the election. However, for the central bank to cut rates in the face of high and rising inflation and a supposedly strong economy would require a significant departure from its traditional approach to monetary policy.
Fed Chairman Jerome Powell has set the stage for potential rate cuts by reinterpreting the established 2% inflation target. He has signaled that sustained inflation above 2% may not deter the Fed from injecting more money into the economy.
It’s unclear whether the recent unexpected increase in the PCE to 3.7% will cause him to reconsider his stance.As the Fed’s credibility on inflation diminishes, investors are turning to precious metals as a means of safeguarding their wealth.
Despite a recent decline in gold and silver markets, they have shown a strong upward trend this year.Gold and silver prices have risen more quickly than many bullish investors anticipated, with gold reaching year-end targets of $2,400 an ounce before the end of April.
Gold’s climb to new all-time highs has occurred without the Fed cutting rates. It has increased even as expectations for rate cuts this year have been delayed or reduced.
Even if rate cuts are entirely off the table, there is no reason to believe precious metals markets cannot continue to rise. They have already increased since the Fed began raising rates in 2022, and it is reasonable to expect they will continue to appreciate over the long term in relation to the devaluing U.S. dollar.
The extent of precious metals’ appreciation largely depends on how quickly the currency devalues. Fundamental factors such as mining supply, industrial demand, and investor interest can cause prices to fluctuate cyclically.
Gold’s surge to record highs has sparked increased mainstream interest. This rise follows a period of reduced investor purchases of bullion and exchange-traded products in the past few years.
Silver remains largely unnoticed by Wall Street and most mainstream investors.Ultimately, gold and silver markets are far from being overbought in the long term.
These markets remain under-invested.In the case of silver and other white metals, they may be significantly undervalued given their persistent supply deficits.
These deficits can only be resolved through either declining demand or higher spot prices that encourage increased production.Increasing mining production is a complex process that requires time, unlike the rapid increase in new fiat currency supply.
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