Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed WAY behind Curve, Real Rates to Remain Deeply Negative

Interest-Rates / US Interest Rates Dec 20, 2021 - 02:18 PM GMT

By: MoneyMetals


As the Federal Reserve prepares to taper its asset purchases, investors are preparing to adjust their portfolios.

Some are dumping gold. They could be making a big mistake.

Sentiment toward precious metals turned negative as prices fell over the past few weeks. Gold and silver markets continued to slide ahead of the Federal Reserve’s policy meeting on Wednesday.

However, they got a bounce following the Fed’s announcement that it would double the pace of tapering in 2022 and raise interest rates up to three times.

PBS News Anchor: Federal Reserve officials announce that they are prepared to fight inflation with a series of interest rate hikes next year, suggesting it will begin earlier than they projected just months ago.

Jerome Powell: We are committed to our price stability goal. We will use our tools both to support the economy and a strong labor market, and to prevent higher inflation becoming entrenched.

PBS News Anchor: The Fed also announced that it will scale back even further its efforts to stimulate the economy through major bond purchases.

The central bank may well soon begin reducing its asset purchases, but that’s not the same thing as reducing its balance sheet or the money supply. Far from it. In reality, even after tapering, the Fed will continue to hold its existing hoard of bonds and replace them as they mature.

Recent blowout readings on the Consumer Price Index and Producer Price Index suggest the Fed is way behind the curve on tightening. It almost certainly won’t get out in front of inflation next year with three measly quarter point rate hikes.

Could the Fed’s move to taper and eventually hike rates mark a significant bottom in precious metals markets? It’s quite possible.

Naysayers claim that Fed tightening will be bad for gold and silver markets. Rising rates are a headwind for metals – or so the conventional wisdom goes.

There’s a lot of misinformation out there on the relationship between gold and interest rates. Some commentators confidently assert that higher interest rates are bullish for the U.S. dollar and therefore bearish for gold.

While that may seem logical in theory, it often doesn’t bear out in reality.

Consider that the gold market reached its last major bottom in December 2015 at around $1,050 an ounce. That happened to coincide with the onset of a Federal Reserve rate raising campaign.

Previously, a third round of Quantitative Easing was announced in September 2012. At the time, many analysts assumed that QE3 would provide an immediate boost to gold and silver prices. Instead, the metals markets declined for several months following the Fed’s announcement.

The lesson is that precious metals markets don’t move in direct lockstep with Fed easing or tightening. Gold and silver prices show virtually no correlation to nominal interest rates.

What matters is real interest rates – meaning, rates relative to inflation. Real rates can remain negative throughout a Fed tapering and hiking campaign.

Real rates are currently at one of their most deeply negative levels on record thanks to the recent inflation spike. And yet gold and silver prices don’t seem to be responding as they should.

That’s understandably a source of frustration for precious metals holders. Some critics claim that gold no longer serves as an inflation hedge.

But you’d have to be very short-sighted to come to that conclusion. At this time 20 years ago, gold was trading at under $300 per ounce. It’s come a long way since then as the value of the dollar has steadily declined.

Gold will continue to offer long-term inflation protection, though its ups and downs from year to year will be difficult to predict. Inflation is here, and central bankers won’t be getting out in front of it anytime soon.

The bottom line is that if you wait for the Fed to start cutting rates again or launch a new QE program before seeking refuge in precious metals, you may miss the next big move higher.

By Mike Gleason

Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2021 Mike Gleason - 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.

© 2005-2022 - 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