The Federal Reserve elected to cut interest rates again by 25-basis points at the conclusion of its meeting this week. The committee voted in favor of the cut by a margin of 7-3. The split may have been more than markets anticipated, and the Fed’s commentary was deemed to be not so easy when it comes to monetary policy.
7 of 17 FOMC members expect just one more rate cut this year. The not so dovish meeting sent stocks lower initially before they recovered. The decline in stocks is indicative of the disappointment that markets may have felt as the Fed did not provide an overly dovish path for rates ahead.
Although the Fed may be trying to take a wait and see approach, there are numerous issues that could potentially force the central bank to become more aggressive as it eases policy.
The ongoing U.S./China trade war, the potential for a messy Brexit, tensions with Iran and an accelerating global economic slowdown could all play a part in taking rates back to zero.
Other global central banks have also continued to keep rates at ultra-low levels, and many could be forced to cut rates further or even implement fresh QE stimulus. For all practical purposes, the era of easy money looks far from over.
Despite a more hawkish commentary by a divided Fed yesterday, the gold market has stood its ground and appears intent on maintaining trade around the $1500 level. As discussed previously, the market seems to have built a fresh base on which to move higher.
The gold market likely sees a path higher regardless of what the Fed does or doesn’t do.
If the central bank does not appease markets by cutting rates further, stocks will find a long-term top and the next major bear market will ensue. If the Fed does continue cutting rates, stocks may stay afloat for longer as the dollar weakens. Fresh stimulus may keep stocks from a total collapse, for now anyway, but at some point, the decade old bull market will conclude. At that point, a significant amount of investment is likely to find its way into alternative asset classes, and gold could stand to benefit significantly.
Against the current economic and geopolitical backdrop, the gold market could easily return to all-time highs around $2000 per-ounce and significantly higher.
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Don’t wait for the next major stock market collapse or for the global slowdown to turn into a global recession before acting. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: brexit, committee vote, divided fed, gold market, monetary policy, QE stimulus, rate cut, trade war