The Federal Reserve has been the topic of considerable debate in recent months. The central bank has continued its course towards policy normalization over the last couple years but has recently run into a brick wall.
The Fed has hiked several times over the last year, drawing the ire of numerous analysts and even the President of the United States. The central bank recently followed through on its plan for another 25-bps rate hike in December. The recent release of the latest FOMC meeting minutes, however, showed a mixed Fed. Some officials thought the central bank should hold off on any further hikes given recent market volatility and declines. The potential for a global slowdown is also a source of concern.
Although the Fed still has two further hikes penciled in for 2019, markets are betting that zero hikes materialize. In fact, some have even suggested that the Fed may need to cut rates again before the end of the year.
And therein lies the problem….
The benchmark 10-yeat note yield is somewhere in the area of 1.5% lower than where it was pre-Lehman. In other words, key interest rates were higher pre-financial crisis and have not gotten anywhere near previous levels. If the Fed feels it needs to embark on another rate-cutting campaign, the central bank does not have as much room to work with. Cutting the key interest rate from 2 or 2.25% down to 1.5%, 1%, or even 0% does not carry the same type of shock and awe as say starting from 5% and working lower.
If interest rates (the main Fed policy tool) are not as effective the next time around, the Fed will be forced to turn to other methods in order to try to boost growth. A likely vehicle for doing so could be another round of quantitative easing, or QE.
QE comes with a price tag, however, and a heavy price at that. Once central banks fire up the printing presses, the value of each unit of currency declines. Put simply, more QE from the Fed or other central banks can cause significant declines in the respective currencies. As the dollar loses value, each dollar purchases fewer goods and services. Purchasing power and net returns both decline.
There is a way to get ahead of a dollar devaluation, however, and it may be surprisingly simple: Buy hard assets like physical gold.
Gold has been considered a reliable store of wealth and value for centuries-and with good reason. Unlike fiat currencies or paper assets, gold carries zero counterparty risk. It cannot go bankrupt, default or create more of itself out if thin air. It has inherent value and can be used as a medium of exchange anywhere on the globe.
As a dollar-denominated asset, gold tends to have an inverse relationship to the currency. In other words, gold tends to rise when the dollar weakens and to decline when the dollar strengthens. If the dollar is likely to be devalued in the years and decades ahead, it stands to reason that the price of gold could increase dramatically.
Given the current economic and geopolitical backdrop, the need for this asset class has perhaps never been greater. Factor in the potential for a massive dollar devaluation and some might say it’s a no-brainer.
Adding physical gold to your portfolio has never been easier. Just pick up the phone and speak with an Advantage Gold account executive today. Our associates are here to 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 your dollars to lose even more value before acting. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, benchmark, central bank, fomc, gold, lehman