A lot has been discussed in recent months concerning the Fed and its potential plans to begin hiking interest rates. One week the Fed is seemingly on hold, the next week the central bank is getting ready to hike. During this see-saw discussion of the beginning of the tightening cycle, the Fed has consistently stated that any decision with regards to interest rates would be “data dependent.” The equity markets are now in an absurd state of uncertainty. A bad piece of economic data can be interpreted as “good” because it would mean the Fed is likely to keep rates low, while good data can have the opposite effect sending equity markets lower. Reality is that the Fed has created an environment where their policy is much more important for the stock markets as opposed to real fundamentals. This is NOT a healthy environment for equities.
Gold prices, on the other hand are not driven by monetary policy as much as they are by psychology and actual fundamentals. For these reasons-and many more-we believe that the remainder of 2015 and 2016 could stellar years for the yellow metal whether interest rates go up or not.
What seems to get lost in the discussion on what the central bank may or may not do is what they have done over the last several years…
Interest rates have been held at zero for years now. The system has been flooded with massive sums of money through quantitative easing. Money that will at some point have to be removed from the pipeline…
The Fed is facing a serious dilemma. A dilemma that could turn into a calamity. If the Fed starts hiking too much too fast, it could stall the fragile recovery. The Fed seems to recognize and acknowledge this, and thus has stated that any rate hikes would be small and incremental.
On the other hand, if the economy picks up (which we feel is unlikely) the Fed could then have an inflation problem on its hands…
The fact is that none of this really matters…
Gold will not be driven by monetary policy or what the Fed does or doesn’t do. It will be driven by investor psychology, fundamentals, and its status as a currency safe haven.
Much has been made of the ongoing currency wars taking place all over the globe. In an effort to boost their economies through exports and other means, countries have been devaluing their currencies. As the value of currency declines, everyday goods and services become more expensive domestically.
While the great disconnect between the U.S. Federal Reserve and many other global central banks is causing some strength in the dollar, it is only a matter of time before this house of cards tumbles…
Regardless of any current strength being seen, the dollar is on the path to massive depreciation. An organized move away from the greenback is already underway, and could accelerate at any time.
Saudi Arabia, for example, could destroy the value of the dollar in one swoop if it decides to put an end to dollar denominated oil transactions.
Other countries have already taken action, with trade lines being set up in alternative currencies. Russia, China and others see the writing on the wall, and are preparing for the eventual collapse of the dollar and the end of its status as the reserve currency of the world. More and more countries as well as investors see what is going on behind the scenes. These nations and investors are happy to buy gold at the relatively low current price. Psychology is a big factor in this buying-they are afraid. And for good reason.
The herd mentality seldom pays dividends. Right now, the herd mentality is that with higher rates comes lower gold. Investors are continuing to chase returns in a QE induced equity rally. Some investors, however, know better. They recognize what will happen in massive dollar devaluation and they are taking action to protect themselves.
Hard assets like gold, silver and other precious metals may provide protection against the coming dollar collapse. Demand for these assets is not dictated by any central bank or government. Rather, demand will be dictated by psychology and necessity.
The time to act is now. Don’t wait another second as the value of your hard earned money depreciates. Recognize the psychology driving the market right now, and why you should not be another member of the herd. Consider what a dollar collapse would mean for your money, investments and quality of life.
It has never been easier than it is today to begin allocating capital into hard assets like gold or silver.
Getting started with a gold IRA is easy. Our experienced executives are here to guide you, step-by-step, through the entire process. Call us today.
Tags: dollar collapse, Gold sustainability, market uncertainty, monetary policy