Just when the Federal Reserve had made it out of the regular news cycle, official warnings of renewed rate hikes brought our financial leaders back into the spotlight and put the economy under the microscope.
Watch this week’s The Gold Spot to hear Scottsdale Bullion & Coin Sr. Precious Metals Advisor Damian White and Precious Metals Advisor Todd Graph explain the Fed’s announcement, how markets are reacting, and why retail markets are flowing to gold.
The Fed Warns of Higher Rate Hikes
Earlier this week, Jerome Powell testified in front of Congress admitting that the Federal Reserve plans to notch up interest rates even higher and for longer than they had anticipated. Our top financial czar acknowledged that inflation is entrenched and that the economic road forward would be a “bumpy” ride for investors.
Markets Buckle on Inflation News
The Fed’s unwelcomed announcement sent shockwaves throughout the financial markets, rocking assets across the spectrum. These higher-than-expected interest rates are even hitting some of the strongest-performing investments including hard assets and real estate. Gold and silver markets even took a hit on the back of Powell’s announcements, although gold and silver prices quickly stabilized. Unfortunately, the same can’t be said for traditional markets which remain lower.
How the Fed Killed the Real Estate Market
The real estate market defied expectations throughout the economic turmoil of the past few years, but the Fed’s most recent news of higher rates might burst the economic bubble. The housing market’s success is due in large part to the nearly bottomless reservoir of low-interest rate, easy-money debt supplied by the Central Bank.
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A staggering 80% of outstanding mortgages originated in 2020, 2021, and 2022 at relatively low-interest rates. The market was running hot as homeowners and investors took advantage of the 3% interest rates. Now, the market is reeling with interest rates sitting at 7% and rising. This is the first time in history that housing prices are tanking while inventory is stagnating and even declining.
The American People Pay Once Again
As the largest growth engine of the US economy, the housing market causes widespread pain when under pressure. Combined with rampant layoffs and high credit card debt, higher mortgage payments will squeeze Americans even further. No matter what the Fed does, we’re not in a good position economically. People are starting to look for assets that will return their capital rather than focusing on making a return on their capital.
“People are trying to…get into assets [for] a return of [their] capital instead of a return on [their] capital.”– Damian White, Sr. Precious Metals Advisor at Scottsdale Bullion & Coin
New Flows to the Gold Market
While mainstream markets head downstream, the gold market is seeing a flood of new investments. It’s not just the central banks binging on gold in 2023. There’s a significant amount of retail flow as people eagerly move their assets away from real estate and fiat-backed assets to tangible investments as a hedge against inflation.
This market wide repositioning will provide a massive boon to gold prices which means investors need to buy gold quickly before values skyrocket. Experts were already predicting 2023 would be a big year for gold, and the most recent economic circumstances are only adding more fuel to the fire.
Buy Gold and Wait, Don’t Wait to Buy Gold
Gold and silver spot prices experienced a slight dip immediately following Powell’s announcement of incoming rate hikes and ongoing inflation. This temporary drop in gold and silver prices is a gift to investors looking to average down their gold and silver costs for greater profits in the long term as everything in the market suggests significant gains in the near future.
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