As the year draws to a close, investors are carefully analyzing their portfolio performance and diligently drawing up strategies for the future. The recent release of encouraging CPI numbers and murmurs about a potential shift in the Federal Reserve’s rate hike policy have breathed a welcome dose of optimism into an otherwise gloomy market.
In this week’s The Gold Spot, Scottsdale Bullion & Coin Precious Metals Advisor John Karow and Sr. Precious Metals Advisor Damian White explain the potential for rate cuts, how this would impact gold prices, and how investors can position their portfolios for success.
Analyzing the CPI Numbers
The most recent Consumer Price Index (CPI) revealed some promising progress in the battle against inflation. The index only increased by 0.1% in November, following a static October. Although CPI excludes energy prices, the gasoline index saw a 6% decline which was enough to cancel out other energy-related increases.
Although these numbers are hopeful, it’s important to remember that inflation is still increasing, just at a slower rate. Year-to-date inflation sits at 3.1% which is much better than the recent highs, but still far from the target of 2%. Still, experts believe the decrease has been large enough to warrant a reversal in the Fed’s rate hike policy.
CPI numbers [show] that inflation has been slowing, which would incentivize the Federal Reserve to cut rates as the economy slows.–
Fed Signals Rate Cuts in 2024
The Federal Reserve confirmed the rumors of potential rate cuts during its December meeting. The welcomed news sent stocks and gold into a rally as investor confidence received a short-term boost. Fed Chair Jerome Powell acknowledged that most Fed officials anticipate multiple rate cuts in 2024, with median projection suggesting three cuts in total.
During the meeting, the Fed highlighted its progress in curbing inflation while acknowledging slower economic growth in Q4. Furthermore, our financial czars revealed poor US GDP growth predictions for 2024 at 1.4%. On top of that, core inflation isn’t expected to reach the target of 2% until 2026 which suggests several more years of heightened inflation.
Economic Uncertainty Persists
Even if these rate cuts are realized, the fate of the economy remains uncertain. According to one survey, experts still put the chances of a recession at 41%. Other economic factors such as government spending, national debt, and geopolitical tension would most certainly stymie a full economic recovery no matter how low inflation rates became.
The market isn’t even convinced of the Fed’s ability to resuscitate the economy. It’s already factoring in twice the number of interest rate cuts in 2024 than what the Fed projects. In other words, investors aren’t confident that the Fed’s strategy is sufficient to address the economic challenges.
The Impact of Rate Cuts
Rate cuts are usually viewed as a positive sign, but savvy investors are looking at the nuances. Typically, a reduction in interest rates leads to a drop in the value of the dollar and a commensurate rise in gold prices. We’re already seeing many clients reposition their assets in preparation for that move in 2024.
We’re going to see a very strong move in anticipation of [rate cuts] into 2024 with the price of gold.–
Gold has performed strongly over the last couple of years even in the face of an aggressive interest rate policy. Recently, gold prices broke the $2,100 barrier, signaling even more growth in the near term. The logical next step is to see a massive move into gold in anticipation of the devaluation of USD and traditional dollar-backed assets.
Don’t Wait to Buy Gold, Buy Gold and Wait
While investors can safely assume an incoming shift into gold, it’s impossible to predict when this large-scale move will happen. There are simply too many unpredictable variables. The Fed doesn’t even know when they’ll cut rates, by how much, or how consistently. However, the decision is imminent.
Smart money investors are already shuffling around their assets to set themselves up for success right now. The window of opportunity to buy gold at lower rates is closing quickly with fortuitous gold price predictions in 2024. If you’ve already bought, take this chance to dollar cost average gold for a lower cost-basis and higher returns in the future.
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