It is decision time for the U.S. Federal Reserve.
Policymakers will meet in mid-June to decide whether to raise interest rates: something that has only happened twice in the last decade as our economy has struggled. The financial media is obsessed with what the Federal Reserve is going to do.
Will the Fed raise rates?
Pundits say it could be in the cards, but the timing is terrible. A recent U.S. Department of Labor report said the U.S economy just added a palty 38,000 jobs, far below economist estimates of 162,000. Prior to the release of the bleak jobs report, a CME tool of market sentiment saw a 21% chance of a June rate hike. After the report hit the news, the odds fell to a low of 4%.
Gold and Silver: What to Expect
With so much at stake at the whim of Fed policymakers, it isn’t surprising that the markets are feeling a little queasy! Fortunately, history shows that physical gold and silver can be wealth-preserving assets in both rising and falling rate environments.
For example, gold and silver prices rose in the months following the last Fed rate hike in December. When the Fed raised the Federal funds rate from 1% to 5% in the mid-2000s, gold rose as well.
These are encouraging facts, yet I encourage you to look deeper. An analysis of long-term interest rates and gold prices (1970 to 2015) reveals a correlation of only about 28%. So ultimately, the price of gold is may not be a function of interest rates at all.
Ultimately, we believe that the bigger drivers for gold prices are facts like growing investor demand and limited supply over the long term. Supply/demand trends are excellent for gold. The actual physical level of gold supply changes slowly because it can take up to ten years for a gold deposit to be converted into a producing mine.
What volatility can mean to your money depends on whether you are a short-term trader or a long-term investor. In fact, market volatility enables smart long-term investors to buy undervalued assets at bargain prices. If you are diversified, volatility becomes much less of a worry.
Warren Buffett: Don’t Equate Volatility With Risk
Berkshire Hathaway CEO Warren Buffett had a warning for investors in his latest annual shareholder letter: do not confuse volatility and risk. That lesson is often overlooked in business schools where volatility is almost universally viewed as a proxy for risk.
In fact, volatility is far from synonymous with risk. Owning any asset for a day, a week or a year is far riskier (in both nominal and purchasing-power terms) than investing for the long term. Warren advises his shareholders to invest with a multi-decade time horizon. Warren Buffett’s investment success has been built on patience, being diversified and avoiding short-term market obsessions.
That is excellent advice when considering your next moves to protect your retirement.
Physical Gold: Long Term Trends and You
Long-term trends are stacked in favor of gold and silver, independent of the troubling randomness of Federal Reserve bankers.
As much as it pains me to say, confidence in the U.S. dollar is dropping. Negative interest rates and anemic economic growth have eaten away at our traditional banking system. Physical gold is gaining respect as a kind of alternative global currency and hedge against both deflation and inflation.
Many investors are moving away from dollar-based financial assets and into gold. Investment pro Stan Druckenmiller recently shocked Wall Street and told everyone to sell their equity holdings and buy gold.
Gold is no longer just a commodity but a viable alternative to stocks and bonds. Gold is safe, easy to store and can be exchanged virtually anywhere in the world. Owning gold helps safeguard your privacy and is a comforting form of personal insurance in the event of a market collapse.
Wondering what this means for your IRA? Our experts can answer your questions about how physical gold could react in the wake of the Fed’s policy meeting. You’ll want to know where you stand if interest rates go up, down or stay unchanged.
