The month of August saw a fair amount of volatility return to the financial markets in general, but less so to precious metals such as gold. We saw the S&P 500 rally from its low on August 1, of 4073 to a month high of 4327.
The stock market had turned bullish after last month’s inflation data was slightly lower than expected. This created the notion that the Federal Reserve might not act so swiftly on interest rates. Stock investors began to fear the worst and by mid-month, the broad stock index began to decline.
The bearish sentiment was further exacerbated by a speech from Fed chair Powell. Speaking from the yearly central bankers meeting in Jackson Hole, Wyoming, where he reiterated the stock market’s worst fears: Inflation seems sustained and interest rates will continue to rise in order to fight it.
Source: TradingView (S&P 500 value in August 2022)
Gold Remains Stable
Gold remained stable for most of the month while losing some ground over the last days as investor fear spilled over into precious metals. Nevertheless, gold prices didn’t see any of the high volatility we saw with other markets.
From the chart above you can see that price action was absent of high peaks and shallow troughs. Gold prices hit a month high of $1,807 before declining slowly to the monthly close of $1,720. Which equals a 4.8 percent decline from its peak.
Worthy of note, China seems to continue its goal of hoarding gold in massive amounts. Many reports have surfaced in the past on how China may have much more gold in reserves than most experts imagine. Adding to their accumulation spree, in August Eurasia Business News reported that China had increased gold exports from Russia eight-fold.
Copper Goes into Bull Mode
Copper prices saw the beginning of what seemed like a new bull market. The price of the highly demanded industrial metal went from $3.55 to $3.78 for a percentage increase of 6.5%, before stumbling with the general negative sentiment back down to $3.52 for the month’s close.
At the beginning of the month, Bloomberg reported that nearly $740 million of copper holdings went missing in a storage facility in northern China. That was equivalent to 300 thousand tons of concentrate. It still remains to be seen if copper will recover.
However, electric vehicles are becoming more and more popular and EV makers need twice the amount of the metal to produce their cars. With the growing demand for more EVs, we could still see copper recover a bull trend.
Crypto Winter Extended
Cryptocurrencies took another beating during the month of August as the crypto winter continued to prevail. July had seen Bitcoin and Ethereum recover some of the lost ground from the beginning of the year.
However, the trend did not last in August, when it reached a month high of $25,214 to then fall in the last 2 weeks to levels of around $20,000. Risk-off sentiment transferred to the crypto market and the risk of higher interest rates seems to weigh heavily on most cryptocurrencies.
While some asset managers are still trying to get the SEC to allow cryptocurrency ETFs, other institutions around the world are dropping digital currencies. Honk Kong institutional investors are beginning to cut or eliminate their crypto holdings in their investment plans.
August has proved to be considerably volatile and hectic. The stock market is still trying to figure out how fast the Federal Reserve will act against inflation. And in the attempt to gauge how high-interest rates will go and how badly corporations’ bottom line will be affected.
With the current climate of turmoil, geopolitical tensions, high inflation, and supply side woes it makes sense to add alternative assets to your portfolio. Assets that have a low correlation to stocks and bonds work best. And also, assets that have positive returns in times of inflation like TIPS.
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