Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

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