Is The Fed Done Hiking Rates? Watch The Price Of Gold

Is the Fed Done Hiking Rates? Watch the Price of Gold

King Dollar was on top in 2018, one of the few major assets to close the year in the black on steady interest rate hikes and robust economic growth in the U.S. But greenback strength is a double-edged sword, as you know. Although good for U.S. consumers, it can hamper exporters, commodities, oil, gold and more.

So will rates continue to rise in 2019? If so, the dollar will follow suit, putting additional pressure on other assets. I think there are a number of signs that the rate hike we saw in December could be the last one this cycle. Just this past Friday, Federal Reserve Chairman Jerome Powell commented that “we will be patient” with further rate hikes, which I believe is good news.

I’ll have more to say on rates in a second.

Under the circumstances, I’m very pleased with how well gold performed last year. It’s doing what it’s supposed to do. Stocks began to sell off late in the year, boosting investor demand for safe haven assets. As I explained in a Frank Talk last week, the yellow metal beat the S&P 500 Index for the month of December, the fourth quarter and the year. It’s also outperforming the market so far in the 21st century.

 

Gold was one of the top performing assets of 2018

 

Gold was also one of the most liquid assets of 2018, with daily trading volumes in the same neighborhood as S&P 500 companies, according to the World Gold Council (WGC). I can’t stress enough how important this is, as it underscores the maturity and trustworthiness of the gold market. The WGC puts it well: “Clarity and transparency in financial markets is beneficial to investors as it increases their level of comfort and their understanding of an asset.”

 

gold was the sixth most liquid asset class of 2018

 

Investors Are Betting That the Fed Hits the Pause Button

Back to interest rate policy. Again, I think Powell’s pledge to “be patient” is good news and shows that he’s willing to listen to those who have very publicly expressed their objection to further rate increases, including investing heavyweights such as Jeffrey Gundlach and Stanley Druckenmiller. Last Thursday, the Dallas Fed president, Robert Kaplan, said he supported putting additional rate hikes on hold to see how the global economy plays out.

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Peak gold could be a major tailwind for the price of the yellow metal. Listen to my interview with Bloomberg Radio by  more

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