Posted By | July 13, 2016
Precious metals investors are having a hard time controlling their animal spirits, and the Federal Reserve is partly to blame (or thank). The Fed’s April 27 announcement of no new interest rate hikes was very “dovish,” meaning that higher rates probably won’t show up until December, if then.
What’s that got to do with the price of gold? Plenty! Low interest rates weaken the U.S. dollar, making investments in American stocks and bonds less appealing, especially to overseas investors. On the other hand, a dwindling dollar makes alternative investments more appealing, and by alternative, I mean gold and silver. The dollar may devalue, but precious metals don’t. As folks lose interest in the puny yields offered by U.S. bonds, they turn to gold and silver as assets that hold their value against inflation over the long term.
Want proof? Just two days after the latest Fed announcement. Silver hit a high for a period exceeding one year, and gold gained for the fourth consecutive day. Gold was selling around $1,274.75/troy ounce, getting close to my short-term goal of $1,300. Once we break through that goal, I expect an acceleration in price action, so it’s a good idea to buy more gold now, before this ship sails. Gold is up 20 percent year-to-date, so the rally is looking strong.
Meanwhile, silver was up 1.4 percent for the day and reached a more-than-one-year high of $17.872 ounce. I’m looking for $20/ounce within a year, maybe sooner.
The dollar continues to slump, and the Wall Street Journal Dollar Index was recently off by 0.35 percent to 85.21. That makes gold and silver, which is priced in U.S. dollars, cheaper to purchase by those holding other currencies. That adds to demand and sends prices higher.
Here’s the cherry on the sundae: U.S. gold coin sales are rising even as gold exchange-traded funds (paper shares that are supposed to represent gold) are experiencing outflows. In other words, people want the real thing, physical gold and silver, rather than paper stocks and currencies. As I’ve explained many times, you can use physical precious metals for your daily needs (food, shelter, ammunition) when things go bad and paper money loses its value.
If you haven’t set up your Augusta Precious Metals Gold or Silver IRA yet, now is an excellent time to get moving. And if you have one of our IRAs, don’t forget you can make your 2016 contributions right now, you don’t have to wait until next year!
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