The gold market rose to the highs of the day yesterday as markets reacted to commentary from Fed Chief Jerome Powell. Mr. Powell, at the annual NABE conference in Denver, said that the central bank will start expanding its balance sheet soon. He went on to state that the central bank also remains open to further rate cuts, citing risks to the global economy.
Of note is the suggestion by Powell that this is in no way QE. He was quoted as saying “This is not QE. In no sense is this QE.”
Powell also reinforced the notion that any decisions will be data dependent. The Fed is still widely expected to cut rates by another 25-basis points at its next meeting.
One of the basic premises of QE is that is expands the money supply through the purchase of assets with newly created bank reserves in order to boost bank liquidity.
If the Fed’s plan to expand its balance sheet does not qualify as QE, it is difficult to understand what QE actually is. As the old saying goes: If it walks like a duck, swims like a duck and quacks like a duck, it probably is a duck.
The Fed clearly feels that the time to begin expanding its balance sheet is now. Recent strains in money markets have nudged the Fed Funds rate to the top of the desired range, and an ongoing cash crunch could cause a further spike in rates that could throw a monkey wrench into the Fed’s policy plans.
Whether or not the Fed’s balance sheet expansion is QE is beside the point. The point is that once again it is abundantly clear that markets cannot function without the Fed. The central bank has already reversed course on its previous tightening plans and has begun cutting rates once again. Without the ongoing safety net of the Fed and lower rates, the economy could already be in the next recession and stock markets could tumble. The stock market has already clearly shown what it thinks of rising rates, and rates could have to go to zero again in order to keep stock markets appeased.
That presents two major problems, however.
- The rally is artificial and not due to earnings and economic growth
- Inflation will roar at some point.
The Fed is stuck. If it hikes rates, markets fall. If it lowers rates, inflation will accelerate, and the dollar will decline.
That makes now the ideal time to diversify with asset classes that may potentially outperform whether inflation sees a rapid rise, or the bottom falls out of the stock market. With its unlimited upside potential, ability to hedge against a weaker dollar and inflation and overall reliability, there may be no better asset class to look to than gold.
Adding gold to your portfolio has never been easier, and perhaps never more important. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership and to learn more about the role it may play going forward. Our associates are here to answer any questions you may have and can even show you how to build a significant allocation using an IRA account.
Don’t wait for the next major stock market collapse or for ongoing easy money policies to fuel rampant inflation. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: bank reserves, central bank, expected rate cut, Fed Chief, fed funds rate, fresh QE, jerome powell, market tumble, stock market