Fed Pivots, Gold Continues Path Up

Just in time for their annual economic symposium, the Federal Reserve recently announced a surprising shift in approach and overall philosophy, stating that it will now aim to support a strong labor market and keep inflation rates low.

A strong labor market and low inflation rates were traditionally thought to be diametrically opposed, since a fully employed market has historically put pressure on wages and prices to increase, leading to inflation. For this reason, the Federal Reserve has maintained a biased position against a strong labor market in the interest of the U.S. dollar. At the end of 2019, however, some experts began to question this philosophy, observing that the U.S. job market was extremely strong while inflation rates were remaining low.

The Federal Reserve has now adopted this more optimistic approach.

Federal Reserve Chairman Jerome Powell stated, “A robust job market can be sustained without causing an outbreak in inflation,” and introduced a policy framework aiming for inflation rates around 2% – the lower side of recent decades’ inflation rates.

Specifically, the framework stated, “The Committee seeks to achieve inflation that averages 2% over time and therefore judges that, following periods when inflation has been running persistently below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time.”

However, when asked for specifics about how high above 2% the Federal Reserve would allow, committee members gave different answers.

One Federal Reserve leader said it would range to a 2.25% to 2.5% annual rate, while St. Louis Federal Reserve President James Bullard said, “This is a very large committee as you know, with many opinions. So I don’t think you want to get into precise mathematical formulas here. But the spirit of this is that, in the committee’s judgement, it would be wise to allow inflation to be above targets for some time to make up for past misses.”

While some experts question (for several reasons) whether this plan has been completely thought through, and whether this new “pro-workforce” approach is possible, we know we can rely on two concrete things, or rather, two metal things: gold and silver.

Both gold and silver are a hedge against inflation, or better stated, they benefit from inflation. Historically, gold and silver increase in power as the U.S. dollar loses purchasing power.

Thanks to other factors, gold has already climbed significantly this year despite inflation rates dipping as low as 0.1%. But considering the Federal Reserve’s new goal and the fact that this year’s inflation rate is currently averaging around 1.2%, it appears that gold may have reason to rise more.

If you and your clients missed the opportunity to see gold rise within your portfolios and not just in the news, now may be the time to consider positioning for the next jump. Or, if the main concern is wealth insurance – the protection of purchasing power – we still recommend now as the most prudent time to find a balanced position.

Contact us today to learn more about what the Federal Reserve’s new framework has in store for gold and silver. Our team has witnessed precious metal performance firsthand amid several economic crises and generations of Federal Reserve leadership. We welcome any opportunity share our expertise and educate those with an interest in protecting their wealth.