Has the Dollar Gotten Ahead of Itself?
The latest meeting of the FOMC has now come and gone. As expected, the Fed continued on its recent course of policy normalization, hiking the Fed Funds rate by another 25 basis points. The central bank still expects to hike rates again before the end of the year, likely in December.
There were some key changes in the policy statement, with the central bank electing to drop the term “accommodative” from its statement. Rate expectations going forward also changed as well, and it seems overall that the central bank appears to be a bit more hawkish at this time.
Why then, is the dollar under pressure?
The market has likely already baked any further hikes into the cake, and the dollar may not see any further lift from the Fed in the near-term.
With another three rate hikes still penciled in for next year, it appears the central bank is comfortable letting rates run above the “neutral” line for some time. An additional three rate hikes would put rates into an area that may be considered economically restrictive, and stocks could start to see some selling pressure sooner rather than later.
Also of note is the central bank’s projections, which see economic growth tapering off significantly by 2021.
The current scenario could potentially lead to two key situations: The recent rally in the dollar index may have already run its course, and the currency could see a sharp reversal lower. Second, the stock market could be at or a near a significant high.
Both scenarios have the potential to fuel buying in alternative asset classes, especially those that may benefit from a weaker dollar. It is important to keep in mind the current context as well: Stocks have been running higher for a decade now and the dollar has covered a lot of upside in just a few short months. It is no secret that markets prefer lower interest rates, and with the Fed seemingly becoming increasingly hawkish, the day of reckoning for stocks could be seen soon.
Against this backdrop, now may be the ideal time to start building a significant allocation in alternative asset classes that may potentially benefit from a weaker currency, weaker stocks, or a combination of both.
With accelerating inflation and numerous potential geopolitical powder kegs, what better asset class to start acquiring right now than gold?
The key is to get into the market now. As the aging bull market in stocks starts to really run out of gas, a fresh bull market in gold could just be getting started. A return in gold to previous all-time highs would represent almost a 40 percent increase from current price levels, and there is nothing to say that the market could not move far beyond those previous highs. Not only that, but gold may also provide an important hedge against rising price pressures, a weaker dollar and geopolitical risks.
Adding this key asset class to your portfolio has never been easier. Simply pick up the phone and speak with an Advantage Gold account executive today. Our associates can answer any questions you may have, and can even show you how to build a significant allocation in gold using an IRA account.
Don’t wait for the next major stock market wipeout or for the dollar to resume its long-term downtrend before acting. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: accommodative, dollar index, fed funds rate, fomc, interest rate hike, rate expectations, weaker dollar