The year 2022 has started as no one expected: on the abyss of the Third World War. An escalation between Russia and Ukraine and associated economic sanctions have fueled historic volatility and fear in financial markets. It arrives while the pandemic is still not completely under control, and the lingering impact it had on supply chains and logistics is far from fading.
The situation has dealt a crippling blow to global stock markets as investors brace for the potential business impact of a war and associated economic turmoil. At the same time, important geopolitical commodities such as oil are soaring in value.
Earnings in gold have also grown steadily as investors move capital to well-known safe havens in times of uncertainty or during periods of high inflation. Meanwhile, the highly volatile cryptocurrency market has recently been decoupled from stocks and has received renewed interest from oligarchs seeking to avoid economic sanctions and supporters of both sides willing to donate to the cause. However, their past performance, linked to equities, continues to make them a high-risk asset class.
How will traders survive in the year 2022 when so much is happening in the financial markets worldwide? Here’s more information to help you navigate the unprecedented turbulent times.
Go for the gold
Precious metals tend to outperform while other assets struggle. They do well even during recessions, making them a flight to safety for investors of all sizes. Because gold is an international and boundless asset and asset, it plays a crucial geopolitical role worldwide. Most countries use it as a reserve asset outside of their home currency or the global reserve, the USD. When any of these currencies are under pressure, gold is the right place.
GoldIts use as a monetary asset dates back centuries and remains the standard for hard money. Most national currencies were once pegged to the gold price. Today, fiat currencies are essentially being pushed out of thin air by creating debt. The situation in turn causes inflation, which gold has traditionally been used against. With inflation rates already at 7.5%, gold is once again becoming the de facto choice for investors to protect their hard-earned capital.
The shiny yellow metal also performs best in times of uncertainty. Gold rises around major political events such as the US presidential election or, for example, Brexit. The recent climb started with the trade war between the US and China. And it is performing positively again as the situation across Europe worsens.
A shaky stock market
While the Fed’s extremely lax monetary policy in the wake of the pandemic propelled the stock market to prosper, looming rate hikes wiped out recent gains and may have halted performance for some time. The news of the war made markets even more anxious and hit emerging markets in particular hard.
Additional monetary easing could be warranted if the economy continues to suffer from ongoing wars and sanctions, forcing the Fed at a time when inflation is already dangerously high. The Fed may have to delay rate hikes without further monetary expansion, and the uncertainty will make for some difficult quarters in the stock market. If the conflict in Europe subsides earlier than expected, interest rate hikes could develop as planned.
Simply put, the risk surrounding the stock market could keep performance at bay for much of 2022. More dynamic returns may not materialize until well into 2023, and with the current state of the economy, anything is possible.
Ask for raw materials
Certain restrictions surrounding the pandemic are finally being lifted, and with war taking over the headlines, the media is no longer panicking about COVID. But its damaging effects on supply chains and logistics continue to threaten the monetary system with terrifying inflation. It has also put pressure on strategically important geopolitical assets that are already scarce and in constant demand.
Already weak supply in the face of strong demand and fears of price inflation is pushing energy prices up sharply. Natural gas and oil- have benefited immensely, but are now at an all-time high. While they are currently considered the hot commodities, getting so close to resistance in the oil can be a dangerous move. Several countries are about to take extensive measures to save their citizens from the high prices being pushed onto their wallets.
If and when the situation around Ukraine and Russia begins to stabilize, and Iran makes some provision for the world, energy prices should correct and move closer to normal. If things get tense for some reason, oil prices could hit new record highs.
Make it or break the moment for Bitcoin
Things are getting interesting for Bitcoin and cryptocurrencies. Bitcoin itself has been put forth as the best opportunity to fight inflation due to its limited supply of just 21 million BTC and features that make it comparable to digital gold. Still, the asset has struggled during its worst inflation in decades. Gold is doing well, so safe-haven assets are not the problem.
An ongoing correlation between crypto and the stock market helped propel Bitcoin and other coins to stardom during the post-pandemic stock market rally, but it has hurt cryptocurrencies ever since. The speculative asset class was once presented as an uncorrelated asset class, but has had a high correlation with equities over the past two years. Investors panic selling cryptocurrencies at the first sign of weakness or fear in markets, making them even more volatile than stocks.
However, major players that have missed the boat on their way up in crypto seem to be buying every dip, suggesting that a deeper bullish trend has not quite broken. Bitcoin has also risen surprisingly in recent days as volumes in local Russian and Ukrainian currencies hit all-time highs. Anyone from local supporters to wealthy oligarchs looking to impose sanctions could buy the property, making the situation less clear-cut. Cryptocurrencies may outperform the stock market, but will perform best when risk appetite returns in full and the stock market and crypto grow together again.
How to act during turbulent times with PrimeXBT
While there are clearly many critical challenges that are putting pressure on the economy, financial markets and investors themselves, there are also plenty of once-in-a-lifetime opportunities as a result. In the current environment, buying cheaper assets becomes attractive, but still risky given the global situation and the weight of all factors combined. Rather than taking on more risk than necessary, traders can strategically hedge against risk by using a combination of long and short positions on different assets.
The award-winning margin trading platform PrimeXBT allows traders to open long and short leveraged positions on more than 100 different trading instruments for full control over their portfolio and to protect assets from risk if necessary. Margin trading also allows for lower risk by allowing traders to put less capital on the line while still taking maximum advantage of current market conditions and volatility. Trading with larger positions requiring less capital is a safer way to proceed with caution.
For those who are currently too scared to take positions on their own or simply don’t have what it takes to survive these volatile times, there is always the Covesting copy trading module. The Covesting copy trading module connects followers with traders who regularly show notable success through transparent global leaderboards. Only PrimeXBT and Covesting allow followers to copy the trades of more experienced traders and take advantage of those who not only know how to survive in these times but also how to thrive in them.