Despite all the rhetoric, the Federal Reserve held the line on interest rates at itsWednesdaymeeting. Mixed reports on the U.S. economy–positive job numbers and wage gains, but sluggish GDP growth–largely kept the Fed from raising its target rate this time around.
Gold investors can take some delight in the Feds decision to pass on rate hikes. The absence of Fed action means uncertainty will continue to dominate in the near term and should support gold prices at their current levels. But the longer-term prospects for gold should also give investors reason to be optimistic, no matter what direction interest rates take may after future Federal Reserve meetings.
The reasons are three-fold. First, golds current price remains well below historic highs, which gives them plenty of room to grow.. Investors can expect dips and these slight declines should been seen as opportunities for investors to build their allocations at discounted prices.
Second, the U.S. economy may be in expansion mode, but the current cycle is getting long in the tooth. On average, economic expansions last around 70 months, but the current expansion has gone on more than a year beyond this average. The longer this slow recovery grinds on, the more likely it becomes that this cycle of growth expires. That gives Janet Yellen and Co. a limited window to raise rates, if the Fed even gets to that point.
Third, global central banks continue to experiment with easy money policies, even as the Federal Reserve looks to return U.S. monetary policy to something closer to normal. Case in point is the Bank of Japan, whichon Wednesdaymorning affirmedits 80-trillion Yen bond-buying program and stated its intention of exceeding its 2% inflation target. The immediate result was predictableJapanese stock indexes zoomed higher and the Yen plunged in value relative to the dollar.
Risk will continue to escalate as long as global central banks keep the spigot of easy money open. That makes gold and other precious metals more attractive for investors looking to shelter their wealth from risk through tangible asset classes.
Finally, were less than 50 days out from one of the most contentious presidential elections weve experienced in recent U.S. history. According to recent polls, the outcome could go either way and neither option is promising for economic growth. The uncertainty around the election and its impact should keep markets on edge, with an eye toward the relative safe havens of gold as a way to preserve wealth.