The gold market is up again today, and appears to now be in consolidation mode following strong gains last week. Some sideways price action this week should not only come as no surprise, but should also be viewed as healthy. The bulls may simply be gearing up for the next major push higher.
Recent price action in gold has certainly been constructive. The market has covered almost $50 per ounce in upside, and could just be getting started. The recent rally and improving technical posture may be drawing more buying interest into the market, but the market is also benefitting from several other key issues playing out in the background.
Lower Chinese markets, higher bond yields, upcoming midterm elections, souring U.S./Saudi relations and an ongoing trade war with China are all factors that investors may be taking into account. Not only that, but the EU is in the spotlight once again as Italy makes waves with rising bond yields and a significant budget disagreement.
Following the Fed’s recent decision to raise interest rates again and the release of the latest Fed meeting minutes, it is very clear that the central bank has every intention of following through on further rate hikes. The central bank has displayed a more hawkish tone in recent commentary, and the Fed Funds rate will likely be at three percent before long.
The question is: So what?
Rates are not likely to get anywhere close to levels seen in previous tightening cycles. The Fed understand it is walking a tightrope of sorts as it tries to balance economic growth against inflation. Looking at recent economic data, including the latest reading on the Philly Fed Index released earlier today, it is clear that the economy continues to move along at a robust pace.
Economic strength could turn, however, and turn quickly.
Given the ongoing trade war and recent declines in Chinese markets, significant concerns are mounting that China could lead a global slowdown in the months and years ahead. Such a slowdown could spill over into the U.S. and elsewhere, affecting an already aging expansion. At that point, the Fed may find itself having little choice but to start bringing rates down once again.
In the meantime, further rate hikes may continue to weigh on stocks as the effects of rising yields has been well-evidenced in recent weeks. Stocks could enter a deep correction, or even bear market, if the Fed overshoots and hikes the economy into recession. Not only that, but any of the major geopolitical issues outlined above could have a significant impact not only on U.S. but global financial markets.
Some investors have already begun accumulating gold as they may see the writing on the wall. Gold may not only appreciate in value during the next major economic downturn or geopolitical crises, but it may also provide an important hedge against rising inflation and a weaker dollar.
The bottom line is that a slightly higher Fed Funds rate is not likely going to have any effect on investors’ desire for gold and its potential benefits. And some have come to realize that the time to get involved is now.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership and how it may play a vital role in your portfolio during the next downturn. Our associates are here to answer any questions you may have and can even show you how to build a significant allocation using your IRA account.
Don’t wait for the next major stock market crash or for the next great recession to take hold before acting. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, central bank, gold, hawkish fed, higher bond yields, interest rates, trade war