Due to the pandemic, the world economy was already dealing with significant inflation. USA:s central bank Federal Reserve and other major central banks are now faced with the problematic issue of tightening monetary policy to keep inflation in check without disrupting economic growth nor destabilizing risky markets.
What exactly is going on? Concerns that the crisis in Ukraine may result in a severe shortage of vital commodities are driving up commodity prices. Russia and Ukraine have ceased delivering items that are utilized worldwide for food, fuel, and industry due to sanctions and port closures respectively.
How the conflict in Ukraine is wreaking havoc on the world’s financial markets.
European natural gas prices soared to 345 euros per megawatt-hour as speculations of a possible Russian energy embargo circulated earlier in March. This may not seem significant unless you consider that prices had never exceeded 30 euros before last year, or 200 before last Friday.
Oil prices have continued to rise, causing Americans even more financial hardship at the petrol pump. California gas prices have risen by 51 cents in the last week to an average of $5.34.
In Sweden, on March 7th, the gasoline price was as high as 22.953 SEK for one liter of gasoline. Gas prices have steadily increased in the past five months, but not drastically. Since the beginning of the Russian invasion of Ukraine, gas prices have followed a vast upward spike. In the past 5-months, gasoline prices have gotten over 30% more expensive
(Picture 1. Sweden gas prices per liter)
Before the war broke out, food prices were already rising due to the Covid pandemic, supply chain disruptions, and increasing energy prices. Wheat prices have increased by more than 50% since the war began, reaching new highs, as is expected when almost one-third of the world’s total wheat exports (Ukraine and Russia are the biggest global supplier) are disrupted.
According to Bloomberg, nickel’s 76 percent price increase on March 7th was one of the “most dramatic surges” in metal markets history. The price has surged even further, gaining another almost 25% the following day. Nickel is a critical element in EV batteries and is also used to make stainless steel, and Russia is a significant producer of the metal. Nickel was already in short supply, adding to pricing pressures: Elon Musk begged companies to “please mine more nickel” two years ago.
(Picture 2. Nickel price spike)
Also, other metals and coal has spiked upwards in the last year.
Just as the world economy was beginning to recover from the “Covid Everything Shortage ”, another big supply shock has struck. However, because a surge in economic development doesn’t accompany this shortage of supplies, it raises the likelihood of stagflation and, eventually, recession, said MorningBrew journalist Neal Freyman
Gold is trading near the previous all-time high which was on August 7th, 2020. Since then, the gold price has regulated itself and went down as low as 1680 USD per ounce. The gold price has gained more than 8.5% in value from the beginning of March.
Our recommended gold investment product for March:
The silver price has also increased but not as dramatically as gold. Also, Silver has a long way to go to reach all-time high levels. The highest price level for Silver was at the end of April in 2011 when the Silver price reached almost 50 USD per ounce.
Our recommended silver investment product on March: