The Federal Reserve raised its key interest rate by half a percentage point on Wednesday – the biggest rate increase in 22 years – as the central bank battles against runaway inflation in the U.S.

The Fed bumped up the Fed Funds rate by half a percentage point to 0.75% and 1% and also announced a reduction in its balance sheet by $95 billion.

Gold climbed following the Fed’s announcement this afternoon, trading at $1,899 per ounce at the time of this writing.

What’s next? The large half-point interest rate hike will quickly ripple through the economy. Americans will face higher interest rates on everything from credit card bills, mortgage rates, auto loans and more.

Why Is the Fed Aggressively Raising Rates Now?

Inflation is robbing senior citizens who live on fixed incomes, and those with savings in the bank, by an outrageous amount, as the Fed stood idly by for many months. The latest consumer prices index (CPI) inflation number hit a shocking 8.5% in March. That number far exceeds the Fed’s stated goal of inflation at 2%.

While the Federal Reserve has been slow to act as inflation hit a 40-year high, the central bank must now play “catch-up” in its fight against skyrocketing consumer prices.

In order to slow down the pace of runaway inflation, the Fed will now be forced to raise interest rates more quickly and in larger increments than previously expected.

Normally, the Fed raises interest rates in smaller quarter point moves (.25) versus today’s half-percentage point (.50).

In its statement on Wednesday, the Federal Open Market Committee pointed to the Russian war in Ukraine as a factor impacting inflation. “The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity,” the Fed said.

What You Need to Know

It will be hard to put the inflation genie back in the bottle. The Federal Reserve is embarking on a journey that the U.S. central bank has never successfully accomplished in the past – trying to move inflation significantly lower without triggering a big uptick in unemployment.

The Fed could cause the economy to crash. While the Fed is aiming for a “soft landing” a “hard landing” for the economy is more likely. In fact, over the past 80 years, the Fed has never lowered inflation as much as it aims to do now (4 percentage points) without creating a recession, the Wall Street Journal reported on Wednesday.

How Gold Protects You Now and in the Future

The S&P 500 is already down 13% this year – officially entering correction territory. With a series of interest rate hikes guaranteed this year, the stock market will remain vulnerable to more declines – and even a crash.

Gold remains a rock-solid tangible asset that investors are turning to in order to protect and grow their wealth in these uncertain times. Research confirms that gold is a non-correlated asset to stocks and, historically, when stocks decline sharply, gold has posted significant gains.

With the threat of recession and further stock market declines on the horizon in 2022, the gold market offers proven portfolio diversification and store of value protection for investors. Wall Street firms like Wells Fargo and Bank of America forecast gold gains toward $2,100 and even $2,175 an ounce this year. That means current levels in gold offers investors an attractive buying opportunity. Have you considered if it’s time to increase your allocation to gold?

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Diversification is the first rule investors learn. Spread your investment across a greater number of assets to avoid overexposure to risk in one area. The concept is simple and intuitive. It is also becoming more difficult to follow.

Assets become more correlated as the economy becomes more globalized. This increasing globalization is more apparent than ever as sanctions against Russia take hold. In response, European countries are struggling to find energy alternatives. Simultaneously, countries are bracing themselves for higher food prices as grain from Ukraine becomes scarce.

This setting presents two challenges: First, a lack of resources from any one country is often felt globally. Second, as more countries become reliant on one another more investments tend to move in correlation with one another. This characteristic of today’s economy makes it more difficult for investors to diversify.

The rising correlation of assets is evident in research which points to “a rise of cross-asset correlation between select asset classes.” The research shows “an average correlation increase of 33% between the test periods 1990-2000 and 2006-2016.” This elevated correlation is a problem because, “a significant market event or correction can be compounded by a period of highly correlated assets across integrated financial markets.”

A “significant market event” is becoming more common in the unpredictable environment of today. Since the publication of the research the globe has seen a major pandemic and a war.

As correlation rises investors are struggling to safeguard their portfolio. More investments are beginning to look the same. What happens over here is more likely to happen over there as more businesses become reliant on each other. This conundrum has prompted investors to find diversification by taking a new look at asset classes like gold. This solution, however, leads to another question: What is the right amount of a portfolio to allocate to gold?

Research from State Street in cooperation with the World Gold Council determined that “gold has had low or negative correlation with major equity indices since 2000.” Additionally, their data shows that gold also has a low, or negative correlation to major bond indices.

Their findings also reveal that during nine of the last eleven “black swan” events gold has delivered a positive return. Examples of such events include the 2008 market crash, “Black Monday,” and the flash crash of 2010.

The bottom line is clear: As correlation rises it is becoming more difficult to diversify. Gold offers an important alternative to equities because it is far less reliant on supply chains, interest rate movements, and business operations in other countries.

State Street and the World Gold Council suggest that allocating anywhere from 2% to 10% of a portfolio to gold can improve the Sharpe ratio of the portfolio. The Sharpe ratio is a measurement that enables investors to gauge the risk/return balance of a given investment. Therefore, by holding more gold, investors can improve the risk profile of their total investment strategy.

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If you are a successful entrepreneur, small business owner or a high net worth individual who has accumulated wealth through your innovation, hard work and smart investing, the government is coming for you.

The Biden administration rolled out a major tax reform proposal last week called the “Billionaire Minimum Income Tax.” This aggressive proposal would result in a huge tax hit on America’s high-net worth households if enacted, and it’s not just the billionaires who would feel the pain.

When you look at the details of this new tax championed by progressives – it turns out most of the people impacted are multi-millionaires. This extraordinary tax proposal attempts to redefine “wealth” and “income” and ultimately is a new form of taxation on the rich.

New tax proposals like this offer a reminder to all Americans that there are discreet and private methods to protect your wealth through investments in tangible assets like rare coins and bullion. These private precious metals assets can be stored in your home safe, a bank safety deposit box or even outside our country’s borders at a facility like the International Depository Services (IDS) of Canada, a precious metals depository in Toronto. Assets are stored here in an international personal custody account, which is off depository balance sheets and beyond the reach of the U.S. government. But, we’ll discuss this more later…

First…here’s how this new wealth tax would work.

The 20% minimum tax rate would apply to both your ordinary income and the increase of the value of your assets over the past year.

This is an entirely new structure of taxation that taxes your unrealized capital gains.

In today’s tax code, you aren’t taxed until assets are sold and you realize that income. You don’t pay taxes when an asset increases in value! This new tax proposal stretches the actual definition of wealth – and calls “unrealized gains” your income.

Under this new tax scheme, taxpayers would be required to report their assets to the IRS annually. Assets you own would be valued at their market value and that’s the amount you would owe taxes on.

It’s not just stock portfolios, this proposal would include assets including your businesses and real estate holdings. The market value of these non-tradeable assets would be calculated by a “conservative floating annual return” calculated by the five-year Treasury rate plus 2 percentage points.

What about losses in future years? It’s not clear in the current proposal if losses in future years would offset annual gains.

Here’s an example of what that could mean. Perhaps a high-net worth individual might have to pay a $2 million tax on an unrealized gain in 2022 of $10 million. But, then if the assets declined by $10 million in 2023, you are out of luck. The government has their take. You’ve paid taxes on an unrealized gain, which has now disappeared into thin air.

For now, the proposed tax will only apply to households with a net worth of $100 million or more.

Beware, these new taxes always start out applying to a few and then spread wider to impact more and more Americans in other brackets of wealth or income.

This proposed wealth tax has been put forth as a brand new revenue stream that would bring in roughly $360 billion over 10 years.

Gold is an excellent vehicle for the private preservation of wealth.

The tax tide is turning and the government is looking for more ways to tax wealthy Americans. If these proposals become law it is valuable to understand how it will affect you and why it could be useful to increase your allocation to gold and rare coins now before the tax plan passes.

Fortunately, there is time for you to diversify your wealth to get in front of these proposed tax changes to protect your assets.

Gold bullion and rare coins have long been touted by trust attorneys as an efficient and discreet method of transferring wealth from one generation to another. These tax proposals would significantly reduce the wealth you can give to your heirs – as the government will take a much larger portion of you and your family’s money with this unrealized capital gains tax.

If you or your family could be impacted by the proposed shift in the tax law, don’t wait. Contact a Blanchard portfolio manager for a confidential portfolio review – and to learn strategies to protect and preserve your wealth. Read more about options for storing your tangible assets here.

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In mid-March, the movie theater chain AMC announced their agreement to buy a stake in Hycroft Mining Holding Corp.

AMC will spend $27.9 million for a 22% stake. The investment offers much-needed support for the mining operation which is struggling financially. Hycroft owns a mine in Northern Nevada and is aiming to raise cash by selling shares. Their goal is to generate $500 million.

In recent months, AMC has seen a dramatic improvement in their financial standing as a result of their meme stock status. The stock surged more than 1,000% in 2021 giving the beleaguered chain a boost. This windfall has allowed the company to become more aggressive in their investments.

The question is: why buy shares in a mining company?

While there doesn’t seem to be any definitive answer there are some theories. Some suggest that the investment is a way for AMC to diversify their business. This move may be in response to the continued popularity of streaming entertainment. Additionally, the occasional resurgence of COVID variants has repeatedly kept audiences away from theaters.

Another reason for the deal might be the relationship between Jason Mudrick and AMC CEO Adam Aron. Mudrick – who brought Hycroft public in 2020 – was instrumental in helping AMC escape bankruptcy in 2021 by advising them to initiate an at-the-market share offering. The move helped AMC fully capitalize on their rocketing share price.

The money Hycroft raised from AMC and the money they hope to raise from others might be used to purchase new technology that can more effectively process their reserves. The viability of this plan remains to be seen.

Aron believes that the deal is a wise move for AMC because Hycroft holds “rock-solid assets” and simply needs to overcome liquidity problems to reach profitability. Aron has also indicated that he believes the deal might encourage more investors to purchase Hycroft shares.

Newly raised capital could be the shot in the arm Hycroft needs to realize the full value of their operation. The mining company is focused on gold and silver deposits in Northern Nevada. Their long-term plan is to grow into a large-scale mining operation by redesigning their process for sulfide gold and silver resources.

Immediately following the announcement of the AMC deal investors appeared enthusiastic. Hycroft shares closed approximately 9% higher after the deal was made public.

The rise might also signal a renewed interest among investors in precious metals. As geopolitical tensions continue to rise amid the Ukraine-Russia war more investors are considering of assets that might be more likely to hold their value as global markets waiver. For these investors, purchasing physical gold likely makes the most sense. However, investor appetite for gold and silver has surged enough to reignite interest in mines as well. AMC and Hycroft appear well positioned to benefit from investors’ search for stability in uncertain times.

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