May 2022 Newsletter: The Fed Hikes Rates by 50bp as Precious Metals and Crypto Slide; Accumulate Now or Wait till Next Fed Meeting in June?

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Last Updated on: 27th May 2022, 02:52 pm

Federal Reserve Chair Jerome Powell announced interest rate hikes by 50 basis points in light of generationally high inflation levels. In response, the stock market spiked briefly while the alternative asset market declined by a considerable margin—likely because a steeper rate hike (i.e., 75bp) was priced into the equities market. 

Zooming out, over the last thirty days the gold and silver markets have seen a modest price depreciation (-2.19% and -5.64%, respectively). However, platinum has upticked by 2.66% in the same period, which is the sole “winner” on the month within the precious metals asset class. 

Zooming out further still, the investment thesis for gold has proven itself, once again, to be rock solid during inflationary periods. Over the past six months, during which we've seen increasingly higher inflation rates, the spot price of gold has increased +3.9%. While cash has lost value every month, as has the stock market, the yellow metal has held strong. 

Meanwhile, market conditions fare worse for cryptocurrencies. Ethereum appeared to track Bitcoin over the past month, as both assets slided by nearly 20%, reaching lows they haven't seen since mid-March. 

To summarize, here's a quick State of the Union regarding key alternative assets as of May 5. Below, each asset's 30-day price movement is listed. 

• Gold: -2.19%
• Silver: -5.64%
• Platinum: +2.66%
• Bitcoin: -19.5%
• Ethereum: -19.7%

At face value, it appears that there's a buyer’s market in both the crypto and metal asset classes (and, by the way, in stocks—the S&P500 Index is down -7.46% on the month). It seems less that there's anything inherently unsettling about alternatives at this point in time, but more that all assets are tracking rate hikes by the Fed. 

For a safer store of value in the short term, consider WTI crude oil. This asset continues to experience high levels of volatility and has lost some of its gains, but the black gold is still up 3.8% for the month.

What Does the Future Hold?

In short, amid runaway inflation, the Fed is pumping the brakes—or at least trying to—by implementing the fastest rate hikes in decades. A downstream effect of rate hikes is likely that investment vehicles may see sustained decline economy-wide. The pertinent question is when the market will bottom out. In any case, dollar-cost averaging into a wide diversity of assets may be the most risk-conscious approach. 

When it comes to Bitcoin and cryptocurrency, now is the time to accumulate and HODL. In the year ahead, marked by market uncertainty and what is shaping up to be a chaotic midterm election cycle, it's likely that we’ll see a sideways trajectory in the short and medium terms. Once the election results are settled and the SEC v. Ripple lawsuit is finally concluded, expect the market to be on better footing for the next rally.

Savvy investors aren't going to sit on the sidelines during these turbulent times. Smart money either invests now, in assets with strong fundamentals and inflation protection properties, or invests in June after the next Fed announcement. 

For those sick of waiting around, you can get started today by opening a self-directed IRA (SDIRA) and diversifying accordingly. To help you out, here's a list of our top-ranked SDIRA companies to make your decision a little easier.