This week is one that investors have been anticipating for some time.
The Federal Reserve will gather and discuss a possible interest hike for the United States. Fed chairperson Janet Yellen’s every move and statement is under a fine tooth comb for signs about what is ahead. Worry and confusion over the potential rate hike has kept gold in a holding pattern over the last few weeks.
However, the savvy investor knows that this situation shows every sign of history repeating itself all over again.
Over the last thirty years, gold prices have often trended lower in advance of rate increases. However, after the hike happens, gold has actually gone up more often than not. By all indications, today is no exception.
According to Gary Wagner of goldforecast.com, any expected Fed rate hike has been factored into current market pricing.
Many bargain hunters are finding today’s price levels represent compelling opportunities to increase their allocation to gold and silver: safe haven assets that can help insulate your portfolio from inflation.
$1,800 GOLD IN 2017?
King International Financial Holdings CEO Jasper Lo Cho-yan believes gold will hit $1,800 an ounce in 2017. The recent failure of the Italian referendum and Italian Prime Minister Matteo Renzi’s resignation will cause more upheaval to an already uncertain euro zone.
Bill Gross of Janus is concerned about the inflationary impact that Trump’s stimulus will have on the broader economy. Gross suggests that investors must consider the negatives of Trump’s anti-globalization ideas that will restrict trade and negatively impact corporate profits as well as a strong U.S. dollar which weighs heavily on globalized corporations.
The president of the Chinese Gold and Silver Exchange Society, Haywood Cheung Tak-hay, expects gold to hit $1,500 per ounce next year. According to Cheung, political uncertainties with president-elect Trump could haunt the financial markets in 2017 while the upcoming presidential elections in France, Germany and the Netherlands will introduce greater turbulence.
Cheung expects Britain’s negotiations to exit the EU to further unsettle the markets and thinksinvestors could gravitate to gold as a safe-haven play. Another factor behind Cheung’s bullishness on gold is the recent devaluation of the yuan, which has dropped 7 percent this year after a decline of 5 percent last year. This could push mainland Chinese investors to hedge their currency risks with gold.
IS SILVER UNDERVALUED?
As an investor, it pays to search for places that others have clearly overlooked. If you haven’t looked at silver lately, it could be time to do so right away.
Historically, silver prices tend to rise when inflation increases. The effect can be substantial: up to two percent price growth for every one percent increase in inflation.
Since 2013, inflation expectations five years out have been constantly falling: a key reason why investors have been discounting the silver market.
However, now with a huge fiscal stimulus proposed by President-elect Trump and a likely rate hike from the Fed, higher inflation is coming. In fact, the 10-Year Treasury in now yielding more than 2.5%: a level we haven’t seen since September 2014. Chief investment strategist at Bank of America Merrill Lynch Michael Hartnett believes the steady rise in inflation has only just begun. Trump is expected to propose $1 trillion from Congress for infrastructure spending to be financed through debt.
Inflationary expectations have been rising since the beginning of 2016. Yet silver prices have not gone through the roof. Bargain hunters take note!
Silver prices have held up relatively well in 2016. If inflation returns, silver prices could surge.
SHORE UP YOUR FINANCIAL FOUNDATIONS WITH GOLD
Paper assets are in the crosshairs and not buying gold and silver now at these levels could be an opportunity for the ages.
The election of Trump and higher rates portend the rebirth of inflation. Add growing uncertainty about the euro, a populist backlash against globalization as evidenced by Brexit and Italy’s rejection of the referendum to streamline its government…well, let’s just say that the long-term future for both gold and silver looks promising.
Take control of your financial destiny today and hedge the risks of inflation with precious metals while we are still enjoying these great prices.