Breaking news: Fed holds steady. Why the case for buying gold just got stronger
Federal Reserve Holds Key Interest Rate Steady, Inflation Remains High
Despite September consumer prices at 3.7%, the Federal Reserve failed to take action to bring inflation down today. The central bank held their key interest rate steady at 3.75-4.00%, as inflation climbs. Two Fed members, who wanted the central bank to raise interest rates to fight inflation, dissented, in a 10-2 vote.
Some may dismiss the Fed’s inaction as an attempt to appear non-partisan ahead of mid-term elections next week. Others, may rightly remember that inflation has been above the Fed’s 2% target for five years now.
This makes the case for buying gold even stronger now.
Financial Markets React
Stocks slipped lower, while Treasury yields and the U.S. dollar index edged higher. Gold initially slipped on the news, but quickly rebounded as precious metals investors bought the dip.
How Do Fed Rate Hikes Fight Inflation?
Let’s take a step back and look at the big picture for a moment. When the Fed raises its key interest rate, how does it help bring inflation down? Fed rate hikes makes borrowing costs more expensive on everything from homes, to car loans to credit card rates. The higher interest rates slow down the economy, lower demand for goods and services and help bring inflation back down to the Fed’s 2% target.
Don’t forget, that’s the Fed’s job. The Fed’s mandate is price stability and they set themselves an inflation target at 2%. Yet, the central bank has failed to deliver its own 2% inflation target to Americans like you and me for five years now.
In real terms, the Fed’s reluctance to fully extinguish inflation that climbed as high as 9.1% in June 2022 has a dramatic impact on your personal buying power.
Gold Has a Proven Track Record
While you can’t control inflation or the Fed, you can take actions to protect, preserve and grow your wealth. Gold has been prized as money and a store of value for five thousand years. During that time, empires have risen and fallen. Hundreds of currencies have come and go. Gold has outlasted them all.
Long-Term Bull Market Intact for Gold
Today, the big picture drivers of this major up cycle in gold haven’t changed. We are still seeing record levels of government debt, central bank gold buying, de-dollarization, wars and geopolitical instability and overvalued stock markets. The case for buying gold has never been stronger.
Through it all, gold has a proven track record as a successful portfolio diversifier, currency hedge and a liquid asset that you can hold in your hand and is recognized as money in every country on earth.
This month, State Street Investment Management affirmed its base case for gold prices to climb to $4,750-5,500 an ounce by the end of the first quarter of 2027. With inflation still burning its way through the economy and the value of your dollars, the institution charged with taming it has not yet delivered on its mandate.
Some investors bought today’s gold dip today to add to their portfolio’s resilience and strength. If you didn’t get a chance to increase your allocation to gold, there’s still time. Gold has lots of upside potential over the next several months. Call Blanchard today to take advantage of this opportunity to preserve, protect, and grow your wealth.
