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According to Ole Hansen, head of commodity strategy at Saxo Bank, the U.S. economy will enter a period of very sluggish growth combined with persistent inflation in 2024. This means that precious metals such as gold and silver are likely to begin actively rising in value.
Saxo Bank recently adjusted its U.S. economic forecasts for 2024, considering the potential for stagflation, characterized by sluggish economic growth combined with persistent inflation.
In his statements, Hansen based his views on the massive rise in real interest rates, which has made the cost of financing for the U.S. very high and contributed to the downgrade of the U.S. credit rating by Fitch Ratings.
Furthermore, Hansen pointed to a significant increase in consumer spending related to interest rates, affecting credit cards, new car purchases, and mortgages. He explained that such a combination of low growth and moderately high inflation indicates stagflation. The Federal Reserve will likely be forced to reduce interest rates even before reaching the average inflation target of 2%. This will prompt the FOMC to raise its target rate to 3%, leading to a reassessment of future inflation expectations.
During stagflationary periods, specific commodities draw increased attention as protection against inflation and for portfolio diversification. A weaker dollar can make dollar-denominated goods more accessible to buyers not tied to the dollar, potentially increasing demand and prices. They are also attractive because they can provide a positive real return, even though inflation erodes income from traditional investments. This is especially evident when commodity prices rise due to supply constraints or high demand.
In times of stagflation, some commodities, especially precious metals like gold and silver, might have an advantage. The same can be said for industrial metals.
Therefore, investors who wish to invest in commodities during stagflation should be selective and diversify their portfolio across various sectors and regions.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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