It’s Fed Day. Gold climbs as Fed pushes rates to 22-year high

Fed Hikes Rates to 22-Year High

As expected, the Federal Reserve continued to hike interest rates on Wednesday. the central bank raised rates for the eleventh time since last March, pushing the benchmark Fed Funds rate to a 22-year high, at 5.25-5.50%.

• Spot gold traded higher at roughly $1,978 Wednesday afternoon, after the Fed rate hike, up from Tuesday
• Stocks fell as both the S&P 500 and tech-heavy NASDAQ index traded lower

The Fed’s post-meeting statement acknowledged that “inflation remains elevated” and that “the Committee is strongly committed to returning inflation to its 2% objective.”

So, how is the Fed’s battle with inflation going?

There was improvement in the inflation rate in June with the Consumer Price Index rising 3.0%, down from a peak of 9.1% last year. Yet the closely felt core CPI rate, which excluded food and energy, still climbed a hefty 4.8%. In the weeks ahead, Wall Street will be watching to see if June’s improvement in the inflation number was a fluke or if the improving trend has some holding power.

The million-dollar question is whether or not today’s rate hike was the last in this cycle.

There are many on Wall Street that warn that today’s rate hike may not be the last. The high level of interest rates haven’t taken the wind out of the economy’s sails yet, leaving Fed policymakers scratching their head over still high inflation and a strong job market.

The Fed committee is scheduled to meet three more times in 2023, with the next meeting on September 19-20. The CME FedWatch tool reveals market probabilities of a 22% chance of a .25% rate hike in September. And, another rate hike could ensure that the economy tips into recession.

Gold is climbing.

In the meantime, gold continues to climb throughout the month of July and the outlook for precious metals is strong. Investors are turning to gold as a hedge to protect and grow their wealth during these uncertain times. High-interest rates continue to hurt everyday Americans – pushing new homes out of reach for some, and even making new car loans difficult to manage. Plus, just around the corner lies the return of student loan payments for 43 million Americans this fall, which adds up to slower consumer spending, slower economic growth, and firmer gold prices ahead.

Wall Street continues to forecast new all-time record highs for gold next year.

A new research report from JPMorgan Chase predicts the Fed will start slashing interest rates by the second quarter of next year and that will help gold prices run higher. The firm forecasts gold gains to $2,175 an ounce by the fourth quarter of 2024, with even more scope to climb beyond that if the U.S. economy does retreat into a recession. Citigroup also released a new gold forecast, predicting gold can climb as high as $2.150 in the first half of next year.

Today’s levels in gold offer an attractive buy spot form long-term investors.

Gold remains in an uptrend. Inflation remains elevated. The Fed may need to keep hiking rates until it pushes the economy into a recession, in order to put the inflation genie back in the bottle.

Today’s precious metals prices offer long-term investors an attractive buying opportunity to increase their allocation to precious metals as gold begins a new run higher. The midpoint of the year is a good time to review your portfolio and see if you need to make adjustments. Gold is the ultimate insurance for your portfolio and, by this time next year, it could be sharply higher. Do you own enough?

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