"The Federal Reserve had raised interest rates nine times since 2015. On Wednesday, it signaled that it was done. The European Central Bank last week opened the door to new stimulus. Central banks in South Korea, Malaysia and Indonesia kept rates unchanged after raising them in 2018. Canada and England are on hold. There's no end in sight for the Bank of Japan's asset purchases and negative policy rate. And China’s central bank has taken steps to improve credit to businesses." - The Wall Street Journal
So the fed has paused on raising interest rates to stay in the range of 2.25% to 2.5% for this year. We had been told last fall that they would keep hiking this year until they reach 3%, but how could they keep that up with all other currencies dropping their rates? Even with the fed not raising interest rates, it’s deflationary against the majority of the major world currencies dropping their rates lower and even into negative rate territory. Can you imagine having less money in your savings account at the end of the year instead of more because of negative interest, as they are seeing in Europe? Where would you put your money?
Gold is up to $1,325 today and had been struggling this past year, down to around $1175. Gold serves as an inflation hedge and is an indication of the strength of our US dollar. Therefore, many experts such as Harry Dent thought it could have dropped to the $700 level. However, the dollar strength didn’t effect gold prices too much even as the dollar has been gaining more and more strength. This is likely because everyone around the world uses gold as an inflation hedge, not use in the US. Even as the dollar looked better and better, it is still a currency and vulnerable to manipulation. Many people think of their home as an investment, though it is also more accurately an inflation hedge when you gauge value vs price. Owning a home with the right demographics will protect your wealth during inflation and will pay you a dividend from rent, which gold will not. How are you positioned?
- Joseph Jones