Buckle up, it’s about to get nasty out there. Fed Chair Jerome Powell and company increased interest rates by 75 basis points on Wednesday and stocks got smoked. Powell’s language is a throwback to 80’s Fed Chair Paul Volker, who tackled inflation with President Ronald Reagan.
Powell said, there is no “painless” way to beat inflation. (1) Painless is just another way to say recession. The Fed is stuck, don’t raise rates and inflation tears apart family budgets or raise rates and the economy stalls.
The no pain comment puts Wall Street on notice; there isn’t a Goldilocks scenario. As the saying goes, “Don’t fight the Fed.”
Investors can expect the dollar to gain strength as long as interest rates are on the rise. Stocks and commodities tend to have an inverse relationship with king dollar. Both tend to rise when the dollar is weak and fall when the dollar goes up.
So, let’s look at Gold. Uh-oh! If you are a gold bug, you could be in danger of getting squashed. Unfortunately, Gold broke what looks like an extremely important line of support on Wednesday. Au traded below $1,675 since the Covid crash in 2020. If Gold can’t pull itself over the cliff’s edge, the metal could slip to support at $1,550 and maybe even $1,450.
Should gold get squashed by a rising dollar and interest rates, investors might consider ProShares UltraShort Gold (GLL) as a way to profit. GLL offers twice the daily shot leverage to the Gold bullion. For example, if Gold falls 1%, then GLL would gain approximately 2%. Of course, the opposite is true too. If Gold gains 2%, then GLL would lose close to 4%.
UltraShort Gold (GLL) is only appropriate for high-risk investors that can afford to lose money in short timeframes.