As we focus on the most recent moves of the Federal Reserve, it’s easy to miss the bigger picture. The Fed has been trying to move toward an interest rate “normalization” program for more than a year, since nudging rates up .25 points in Dec. 2015.
Although it remains to be seen whether the two interest rate hikes last December and March signal a rocket launch or a sputtering firecracker, the central bank at least wants to give the appearance of tightening. The Fed has also launched some trial balloons with talk of shrinking its bloated balance sheet.
From both an economic and political standpoint, it seems the only certainty in the world right now is uncertainty. As Danielle DiMartino Booth says, that’s a good reason to buy gold. Booth worked as an as an analyst at the Federal Reserve Bank of Dallas. After leaving the Fed, she founded Money Strong, LLC, an economic consulting firm. She also authored Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America. In a recent appearance on Jay Taylor’s Turning Hard Times into Tough Times podcast, Booth called gold “the ultimate safe-haven investment.”
The price of gold surged after the US launched more than 50 cruise missiles at an airbase in Syria. The military action was in response to a deadly chemical weapons attack the US blames on the Syrian government.
Trump’s decision to launch an attack directly at the Assad government in Syria marks a dramatic reversal in the president’s positions. Just weeks ago Secretary of State Rex Tillerson said the “status of President Assad will be decided by the Syrian people.” As The Journal put it, this tacitly aligned the US with Russia’s plan to allow the Syrian leader to seek re-election.
This week, Trump began a new approach to Trumpcare and hosted Chinese President Xi Jinping at a Mar-a-Lago retreat. The Fed minutes from their March meeting were also released, revealing doubts about continued surges in the economy.
There’s been another shot fired in the “war on cash.” Recently, the International Monetary Fund (IMF) published a working paper offering governments suggestions on how to move toward a cashless society even in the face of strong public opposition.
Over the last several years, we’ve seen a steady push to eliminate, or at least limit, the use of cash around the world. In May of 2016, the European Central bank announced it will stop producing and issuing 500-euro notes by the end of 2018. Not long before the EU announcement, a former Obama economic adviser/ex-Treasury secretary floated the idea of eliminating the $100 bill in the US.
It’s important to remember gold is money, but as we focus on gold’s monetary and investment properties, it’s easy to forget the yellow metal has inherent value in and of itself with amazing practical uses.
NASA is currently developing a new telescope scheduled to launch in October 2018. The power of the James Webb Space Telescope (JWST) will dwarf that of the Hubble Telescope, offering unprecedented resolution and sensitivity. According to an article in Forbes, the telescope’s ability to “see” deep into the infrared spectrum will allow it to image the distant universe to as far back as the first galaxies and even the first stars. Gold will help make this amazing imaging possible.
Over the last several months, analysts have focused on Federal Reserve rate hikes. The central bank nudged rates up in December, and then bumped them another .25 points in March. Many observers expect the Fed to boost rates another two – maybe even three more times in 2017. But all of this focus on interest rates misses an even more significant issue facing the Fed – its bloated balance sheet.
In the United States and other economically advanced countries, we tend to take information for granted. With the proliferation of smartphones and ubiquitous data networks, we literally have information at our fingertips 24/7. But in less developed countries, that’s not the case. Information is as scarce and valuable as gold.
Slowly, but surely, that’s beginning to change as technology creeps into the furthest corners of the world. In Peru, a new company is using basic text messaging technology to help local gold miners.
A constitutional referendum in Turkey in mid-April could bring the most significant change to the county’s political structure since the introduction of its multiparty election system in 1945. With all of the uncertainty surrounding the vote and a shaky monetary system, Turks are starting to buy gold in large quantities. Turkish gold imports surged 17-fold to 28.2 tons in March, according to a Reuters report, as Turks seek out the safe haven inherent in precious metals.
Conventional wisdom tells us Federal Reserve monetary tightening is bad for precious metals. Analysts typically assume rising interest rates and a strengthening dollar will suppress gold prices. The Federal Reserve has raised interest rates twice in the last four months and has hinted at as many as three more hikes in 2017. While the economic environment and the Fed’s commitment to “data dependent” decision making doesn’t seem to support this trend of tightening, the central bank’s actions have dampened some of the enthusiasm for gold and silver.
But as Investment Strategy: ETF Securities director Maxwell Gold pointed out during a recent interview, this isn’t always the case. Historically, there are periods in which gold and the dollar simultaneously move higher.
