With a great deal of economic data set for release this week, all eyes will be focused on Thursday’s FOMC announcement and subsequent press conference. This is the moment investors have been waiting for over several weeks now and the Fed could potentially drive significant market movement based on its decision regarding interest rates.
Odds for a September lift-off appear to have decreased significantly in recent weeks and the Fed may elect to hold off until December or perhaps even longer.
While anything is possible, gold could potentially stand to benefit in either case. Here is what we see happening based on the FOMC decision:
- The Fed decides to tighten now: While this scenario seems quite unlikely at this point, it is still a possibility. While many consider the notion of higher rates a bearish factor for gold, a 25 basis point hike is not likely to have much effect on anything. In addition, the Fed may continue to outline a very slow and incremental pace of hikes to come. While a rate hike could potentially boost the dollar index, it could also potentially be baked into the cake already and a dollar sell-off would not be a huge surprise. Perhaps more importantly, a rate hike could also possibly give stock investors reason to start selling again. Should this prove to be the case, gold could potentially stand to benefit as investors cash out of equities and look for alternatives.
- The Fed holds off: The Fed may elect to hold off on rates, perhaps alluding to a December hike or even beyond. While this could potentially fuel a rally in stocks and risk assets, it may potentially fuel selling in the dollar index. Dollar weakness could potentially fuel a rally in gold and other precious metals. From a larger viewpoint, if the Fed holds off on rates it is doing so for a reason. We have discussed in previous posts the fragility of the U.S. economy and the central bank is not likely to put the economy at risk. The Fed may also take a “wait and see” approach to see if stocks climb back to previous levels or if further volatility is seen in China. It is somewhat difficult to imagine the Fed hiking rates if investors are already anxious.
Whether the Fed hikes now or hikes later, changes will likely be seen in investor sentiment. One could argue that equities reached bubble status long ago, and that the time for the bubble to burst is coming ever closer.
Once it does, look out below.
Now is the time to think proactively about your wealth and your future.
Could stocks theoretically go up forever? Sure, we suppose…
Do you honestly think that is going to happen?
We didn’t think so…
Now is the time to consider alternative asset classes to protect the wealth you have worked so hard to accumulate.
Asset classes that are considered reliable and carry no counterparty risk.
Asset classes that may help protect you from inflation, deflation and a host of other economic or geopolitical issues.
Assets like physical gold and silver.
A precious metals IRA is one of the most convenient ways to add physical, tangible metals like gold and silver to your portfolio.
In today’s uncertain and ever-changing economic times, an allocation in hard assets like gold can not only provide monetary benefits but can provide peace of mind as well.
Please reach out to our experienced precious metals executives with any questions that you might have about investing in gold and the process of setting up a Gold IRA. Call us today at 1-800-341-8584 FREE to get started