Could Higher Rates Derail Gold?

It seems that a big deal has been made of the latest FOMC meeting at which the Fed reiterated its plans for another rate hike in 2017, and three hikes next year. Will the Fed make good on its promise? That’s an entirely different question.

It is important to keep in mind that the Fed was originally planning on raising rates three times in 2016, yet only one hike actually materialized at the end of the year. Could the Fed end up electing to hold off on more aggressive tightening?

Even with rising rates in the U.S., other currencies, such as the euro, could continue to see negative rates.

Perhaps the biggest factor, however, for the path of interest rates both in the U.S. and globally will be whether or not the economy meets expectations. While the economy has improved overall from the Great Recession of 2008/2009, economic activity still remains well below ideal levels. The fact that the Fed has been unable to spark any significant inflation thus far would seemingly reiterate this point.

The idea of higher rates is often used by talking heads and other financial “experts” as a reason to avoid gold. In the current economic climate, however, there are two major holes in this theory. First, rates are not likely to go significantly higher any time soon. Second, even if rates were to see a sharp rise, the fallout in stocks and other risk assets could potentially propel significant amounts of investment capital into gold. In addition, for rates to rise dramatically, inflationary pressures would likely have to be significant. In such case, gold could potentially provide a meaningful hedge against rising prices and declining currency values.

As is often the case in financial markets, the exact opposite of what is expected could potentially happen. Consider this for a moment: Stocks have been moving higher for a decade now on the back of ultra-low rates and massive QE. What are stock investors likely to do once the era of free money is over? Will stocks continue higher? Doubtful… In fact, the Fed could very well end up lowering rates once again in order to combat the next recession or stock market collapse.

Either way, gold appears poised to continue higher with or without further rate hikes. The only question is: Would you rather buy gold at $1250 per ounce or at $1500 per ounce?

Adding real, physical gold to your portfolio has never been easier than it is today. This asset class may not only see potentially significant price appreciation, but may also provide a meaningful hedge against a number of economic and geopolitical issues.

Speak with an Advantage Gold account executive today about the potential benefits that come with physical gold ownership. Our account associates are here to answer your questions, and guide you every step of the way. You can even learn how easy it is to buy physical gold using your IRA account.

Don’t let the “noise” about higher rates or an ongoing rally in stocks prevent you from taking steps to protect your wealth. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.