Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

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