Investors have been cautious this week ahead of Wednesday’s latest FOMC meeting announcement. With no major surprises, the central bank elected to hold rates steady-at least for now-and eluded to the possibility of another rate hike in September.
Kind of like kicking the can down the road…
The Fed discussed improving conditions in the labor market and stated “Near-term risks to the economic outlook have diminished.”
In other words, markets have recovered from the post Brexit freak out-for now anyway.
The Fed has left the door open to a September rate hike, although it remains very unclear as to whether or not such a hike will actually take place.
While Brexit has come and gone, its effects still have yet to be determined. The potential impact of the historic vote could take months and even years to begin to surface.
Things could, and may still get ugly…
While optimism seems to be currently running high, the economy still faces many significant headwinds in addition to post-Brexit challenges.
With GDP data set for release on Friday, the Atlanta Fed has slashed its outlook on economic activity. The Atlanta Fed, using its GDPNow indicator, has cut its forecast on Q2 GDP to just 1.8 percent. Some consensus estimates are calling for a reading of 2.6 percent. If the Atlanta Fed is correct, this would represent a significant miss and could be indicative of ongoing economic weakness.
Hopes had been running high that a reading of close to three percent might be seen, but those hopes have been steadily declining. Weakness seen recently in Durable Goods Orders and the U.S. Census Bureau’s new advance economic indicators report have deflated expectations significantly.
Interestingly, this more pessimistic outlook comes just a day after the Fed appeared to be much more upbeat on the overall economy.
Weak GDP data could potentially give stock investors a good reason to sell, and a sizable correction in equities could potentially get under way. This could be a major positive for gold, as any increasing risk aversion may drive buying in the yellow metal.
As far as the odds of a September rate hike are concerned, Fed Funds futures currently show a 24 percent chance of a hike in September, while odds of a hike before the end of the year are around 50 percent.
Despite the increasing odds of another hike in 2016, gold prices moved higher following the FOMC statement.
Perhaps gold investors know something that stock investors don’t.
The reality is that a September hike is still unlikely, and with the economy still in a precarious position, the Fed will tread very carefully with rates.
The other reality, however, is that gold could potentially continue higher with or without a hike this year.
While stock markets have been buoyed by low and negative rates, one has to wonder just how much higher stocks can go if economic conditions remain stagnant.
There may come a point when investors choose to dump equities and risk assets en masse, and all of that investment capital will have to be put to work elsewhere.
A lot of it could find its way into precious metals like gold and silver.
These metals have held up well in recent months despite ongoing talk of higher rates and a rising stock market. One could argue that this is an undeniable show of underlying strength.
Which begs the question: Would you rather get involved in gold at current levels or wait for higher prices?
It is difficult to imagine a scenario in which the Fed raises rates to any significant levels, yet it is not so difficult to imagine a scenario in which stocks crash once again.
The economy could potentially see several years of sluggish to no growth, and stagflation may become a household term.
Given the possibility of such a scenario, the time to explore other options is now.
Gold and silver have been considered a reliable store of wealth and value for thousands of years, and could potentially outperform in the coming years as global growth remains weak.
Speak with an Advantage Gold account executive now to learn more about the potential benefits of physical gold and silver ownership. Have an IRA account full of stocks that is making you nervous? We can even show you how to begin acquiring and holding physical gold and silver in your IRA.
Don’t wait for the next stock market collapse or for gold and silver to rise substantially from current levels. Begin taking steps to protect your financial future now. Call us today at 1-800-341-8584 to learn more.Tags: advantage gold, brexit, economic outlook, economic weakness, federal reserve, fomc, gold, higher rates, indicators, interest rates, stagflation