Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18
Big Cap US Stocks Fundamentals - 13th Apr 18
Jaguar Land Rover Cuts 1000 Jobs on Diesel Sales Slump, Long-term Discovery Sport Review - 13th Apr 18
Stock Market SPX May Tangle with the 50-day MA - 13th Apr 18
Longtanding Chinese War: Intrigue & Betrayal - 13th Apr 18
How I Own My Gold - 13th Apr 18
ISupply Energy Consumer Warning - Never Put Your Account Into Credit! - 13th Apr 18
SPX Resistance May Prompt A Massive Short Squeeze - 12th Apr 18
Stock Market High Volatility is Not Consistently Bearish for Stocks - 12th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

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