The Fed appears to have a problem on its hands, and markets are watching. The gold market, like many other asset classes, has been paying close attention to the ebb and flow of hawkish and dovish rhetoric from the central bank.
Investors seem to be taking a “wait and see” attitude at this point, neither willing to truly commit but also not willing to stand idly by.
Stocks have been going up for years now, while interest rates have remained artificially low. The gold market has remained largely range bound in recent months, seemingly looking to the fed for some sense of what is going on. That definitive answer does not appear to be coming any time soon.
While bets for an initial interest rate hike of 25 basis points have risen in recent months, the reality is that the Fed seems very concerned about the health of the economy. So concerned, in fact, that it now seems as if the central bank is thinking twice, or three or four times, about raising rates.
While the initial reaction from equity investors may be “buy, buy, buy” as the money spigot continues to flow, the reality is that the Fed likely sees serious underlying problems. These problems are so severe that the central bank does not want to do anything to hamper the “recovery.”
Case in point is the non-farm payrolls data for the month of March. The U.S. added just 126,000 jobs in March while the unemployment rate remained steady at 5.5 percent. To put this number into perspective, consensus estimates were looking for an increase of 247,000 jobs.
That’s not just a “miss” by common standards, but rather an indication of legitimate underlying weakness. Perhaps even more unnerving is the fact that the data for January and February was revised lower.
Some “explanations” for this patch of data have been offered by experts. Does anyone, however, really believe that “poor weather” can cause such an anomaly in job creation?
Perhaps this could be remotely plausible if other indicators were not pointing to the same unpleasant facts.
Declining manufacturing, lackluster job growth, slow consumer consumption and other data points all seem to agree that the economy is not, in fact, as strong as many would believe.
The Fed seems to see the writing on the wall, as the central bank has downgraded its economic outlook for not several months but the next few years.
One cannot deny that the stock market has held its ground, and may in fact make new all time highs yet again. One has to wonder, however, just how much longer this apparent denial can continue.
The dollar index has been the talk of the town in recent months, reaching multi-year highs perhaps based solely on the notion of higher rates. The dollar bulls, however, seem to be fading fast. A lot of hot air has been let out of the greenback balloon as investors now reconsider the prospects for a rate hike. The markets are telling us something….
Adding to this sentiment is the bond market. If those in the know were so convinced that a rate hike was on the way, why is it that 10 year note yields were back under the two percent mark just weeks ago? While yields have risen in recent weeks, they are still nothing to write home about with current yields on 10 year notes standing at about 2.2 percent.
The reality of the situation is that if the Fed is this nervous about raising rates and if they believe that a mere 25 basis point hike could send the economy back-tracking, then how strong can that economy possibly be?
The answer is not very strong at all…
The Fed has stated several times that the decision to hike rates would be “data dependent.”
Well, if that is the case then rates are not likely going anywhere anytime soon.
A rate hike by the Fed at this point may serve only one purpose, to make the Fed seem more credible after months of rate hike discussions.
Even if an initial hike is in fact implemented, the Fed has also stated time and time again that the pace of any increases would be gradual.
Hike or no hike, this is likely already “baked into the cake” when it comes to current prices in several asset classes, gold being one of them.
Gold has held support on numerous occasions in recent months. Buyers have stepped in time and time again, effectively buying the dips. Perhaps they know something that you don’t….
The Fed is stuck, and that is becoming more and more apparent.
As investors become more aware of just how fragile the economy really is, and realize that it could also slip back into recession, the QE inflated rally in stocks will find its end. At that time, which may be sooner rather than later, alternative assets such as gold and silver may stand to benefit substantially.
If you take a closer look, we believe you will arrive at the same conclusion.
Now is the time to be thinking of the future. Now is the time to be looking for places to put your wealth to work, places that have proven reliable in the past.
Gold and precious metals may see a significant influx of investment once the music stops. Don’t be the one left without a chair…
Things are not as great as they seem. Act today. Learn more about this unique asset class and how it may serve to help protect your wealth.
Tags: Fed, federal reserve, raise rates, rates, the fed