Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
Technical Analysis Points to DOW 30k Next Target - 19th Nov 18
Stock Market Consolidating in a Downtrend  - 19th Nov 18
Next Tory Leader, Prime Minister Forecast and Betting Market Odds - 18th Nov 18
The Fed's Misleading Money Supply Measures - 17th Nov 18
Stock Market Outlook: Why the Economy is Bullish for Stocks Going into 2019 - 17th Nov 18
NO DEAL HARD BrExit Tory Chaos, Theresa May Leadership Challenge - 17th Nov 18
Gold vs Several Key Investments - 17th Nov 18
GDX Gold Mining Stocks Q3 18 Fundamentals - 17th Nov 18
Is Gold Under or Overpriced? - 17th Nov 18
Active Managers are Bearish on Stocks. A Bullish Contrarian Sign - 16th Nov 18
Will The Fed Sacrifice Retirement Portfolio Values For The "Common Good"? - 16th Nov 18
BrExit War - Tory Party About to Replace Theresa May for NO DEAL BrExit - 16th Nov 18
Aspire Global Makes Significant Financial Strides - 16th Nov 18
Gold Oil and Commodities …Back to the Future ? - 16th Nov 18
Will Oil Price Crash Lead to “Contagion” for the U.S. Stock Market? - 15th Nov 18
How NOT to Be Among the MANY Stock Investors Fooled by This Market Myth - 15th Nov 18
Tory BrExit Chaos Cripples UK Economy, Wrecks Housing Market Confidence - 15th Nov 18
Stocks Could End 2018 With A Dramatic Rally - 15th Nov 18
What Could Be the Last Nail in This Stock Bull Markets Coffin - 15th Nov 18
Defensive Stock Sectors Outperforming, Just Like During the Dot-com Bubble - 15th Nov 18
Buying Your First Home? Here’s How to Save Money - 15th Nov 18
US Economy Ten Points or Ten Miles to ‘Bridge Out’? - 14th Nov 18
US Stocks: Whither from Here? - 14th Nov 18
Know exactly when to Enter&Exit trades using this... - 14th Nov 18
Understanding the Benefits of Keeping a Trading Journal - 14th Nov 18
S&P 500 Below 2,800 Again, New Downtrend or Just Correction? - 13th Nov 18
Warning: Precious Metals’ Gold and Silver Prices are about to Collapse! - 13th Nov 18
Why the End of the Longest Crude Oil Bull Market Since 2008? - 13th Nov 18
Stock Market Counter-trend Rally Reaches .618 Retracement - 13th Nov 18
How to Create the Best Website Content and Generate Organic Traffic - 13th Nov 18
Why the Stock Market Will Pullback, Rally, and Roll Into a Bear Market - 13th Nov 18
Stock Markets Around the World are Crashing. What Not to Worry About? - 12th Nov 18
Cyclical Commodities Continue to Weaken, Gold Moves in Relation - 12th Nov 18
Olympus Tough TG-5 Camera Stuck or Dead Pixels, Rubbish Video Auto Focus - 12th Nov 18
5 Things That Precede Gold Price Major Bottoms - 12th Nov 18
Big US Stocks Q3 Fundamentals - 12th Nov 18
How "Free Money" Helped Create Sizzling Housing Market & REIT Gains - 12th Nov 18
One Direction More Likely for Bitcoin Price - 12th Nov 18
The Place of HSE Software in Today's Business - 12th Nov 18

Market Oracle FREE Newsletter

Free Online Trading Session

Gold Is Cheap Insurance No Matter What the Fed Will Do

Commodities / Gold and Silver 2017 Jan 11, 2017 - 04:41 PM GMT

By: David_Galland

Commodities

By Olivier Garret : Gold prices have dropped from $1,340 an ounce in September to around $1,130 as of this writing. The cause is the strengthening USD and the recent rally in the US stock market that followed Trump’s surprise victory.

Plus, most people now expect at least a few rate hikes by the Fed. Gold rarely fares well in a rising real rates environment. Many investors wonder if gold has entered a lasting bear market. Or if this is the time to buy while prices are low.


The world is focused on the prospect of rising interest rates. Yet, the market is pricing-in modest rate increases. Here is why:

Fed Chair Yellen highlights that the Fed policies will continue to be accommodative

Following the Fed’s December 13 and 14 meeting, Yellen acknowledged that the Fed is in a wait-and-see mode. Based on recent progress on the employment front, it is planning tightening. It asserts that these are modest adjustments.

Yellen thinks the damage done to the economy by the financial crisis and recession can be fixed with robust aggregate demand and a tight labor market. So far, Yellen and her fellow Fed governors have not been hawkish. This is in spite of the belief the market does not foresee that the Fed will pursue an aggressive tightening policy.

Years of loose monetary policy—coupled with Trump’s infrastructure, de-regulation, and fiscal plans—could unleash a time of economic expansion which would likely include inflation. Based on the Fed’s past behavior, we expect them to be slow to hike rates and catch up. Real rates may turn negative. It would be very favorable for gold prices.

Yellen pointed to negative interest rates as another tool if economy slows

There is also a very real chance the US economy will not continue to move upward. It may even slip back into a recession. We are in the seventh year of economic expansion. Historically, we are overdue for a broad-based market contraction.

In spite of the hope that followed Trump’s win, it is possible that the honeymoon will be short lived for their administration. The challenge facing the US and world economies are plenty.

The US economy is in the headwinds of a strong dollar and over-indebtedness. Lower taxes and increased spending could tip the scale and cause a recession.

Abroad, political tensions in Russia, Syria, Iraq, and Ukraine are ongoing. Europe is in social crisis as they are dealing with a huge wave of immigration. Also, the European banking system is creaking under various strains. Add to this the risks of increasing nationalism and trade wars possibly started by Trump, and the next few years could be unstable to say the least.

Yellen is already on record as saying that negative interest rates are just “another tool in the arsenal.” All it would take is a couple of quarters of negative growth and the Fed would have “to do something.” Negative interest rates are likely one of the last tools in their arsenal. This is why Yellen has already been preparing us for that possibility.

We are in a unique situation today, in that any action from the Fed is unlikely to affect gold prices. Yellen’s comments over the last few months demonstrate that the Fed will only hike rates if they feel compelled to do so.

The Fed Chair also made it clear in remarks a month or two ago that she would not be afraid to use negative rates if the economy entered a recession.

Either inflation or negative real rates would definitely be a plus for gold prices.

Of course, if the economy really starts to show strong growth, the Fed will begin a series of rate hikes to put the brakes on inflation, but we anticipate them to be reactive.

In either case, we believe real interest rates will remain negative—or at best near zero—in both scenarios. This makes a very strong case for holding gold at current prices.

Add to this a very volatile geopolitical environment, fragile economies worldwide, and excessive levels of debt across the globe: the case for gold as insurance and also as a solid long-term investment is as strong as ever.

In fact, the current price decline may be one of the best opportunities for contrarian investors to move cash into a very attractive but unloved asset class.

Grab Your Free Special Report: Why All Investors Should Have Gold in Their Portfolio Now

Tap into the mind of one of Wall Street’s hedge fund legends, and get the real deal on precious metals investing. You don’t want to miss why he says now is the time to buy gold. Click here to get your free report now, compliments of the Hard Assets Alliance.

David Galland
Managing Editor, The Passing Parade

http://www.garretgalland.com

Garret/Galland Research provides private investors and financial service professionals with original research on compelling investments uncovered by our team. Sign up for one or both of our free weekly e-letters. The Passing Parade offers fast-paced, entertaining, and always interesting observations on the global economy, markets, and more. Sign up now… it’s free!

© 2016 David Galland - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules