The FOMC Interest Rate Increase was Short on Expectations – Gold Surges
– Momentum Public Relations –
The Federal Reserve’s biggest meeting of the year was held on March 15-16, capped off by a press conference from Federal Reserve Chair Janet Yellen. In the official press release, the Federal Open Market Committee (FOMC) stated:
“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
Yellen would not rule out the possibility of an April rate hike, striking a notably cautious tone throughout her press conference. She stressed that the committee’s projections were not to be viewed as promises and were subject to change as new data became available. However, the two projected interest rate hikes for 2016 are down from the four hikes experts expected back in December.
Although the FOMC announcement was notable for investors of all types, those interested in gold were particularly enthused by the news. After posting negative returns for the past three years, 2016 has brought plenty of good news for gold investors. Seeing a 13{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} plus hike in the early months of 2016, gold dropped briefly last week before spiking immediately after the FOMC announcement.
Gold began 2016 trading at $1,078.40 USD an ounce. As of March 17, it was trading at $1,262.70 USD an ounce. Reasons for gold’s continued gains include:
- The stock market has been off to sluggish start for 2016. This prompted the rise of gold as investors started losing faith in their stocks and seeking alternative investments. Gold is well regarded as good investment for those seeking protection from global insecurities.
- A weak dollar associated with low interest rates in the United States makes dollar denominated commodities such as gold more appealing. Historically, gold prices increase whenever the value of paper currency falls.
- The Feds appear to be leaning towards higher employment at the expense of higher inflation.
If you’re interested in diversifying your investments with gold, there are four primary options to consider:
- Physical Gold: Banks sell 24 carat gold for investors, but expect to pay a premium for the 99.99{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} purity. Jewelry is often a more affordable way to invest, but don’t forget to check for purity and factor in the cost of a secure facility for safe storage.
- Gold ETFs: Offered by fund houses, gold exchange traded funds are listed on the stock market. They can be purchased and sold just like shares of stock.
- Gold Mutual Funds: Allowing investors to invest through SIPs, gold mutual funds invest in multiple gold ETFs.
- Gold Bond Schemes: Gold-denominated bonds are issued by the Reserve Bank of India (RBI) with a fee linked to current gold prices. They have a maturity date of eight years and an exit option after five years.
Although now may seem to be the perfect time to invest in gold, please keep in mind that prices will inevitably continue to fluctuate. Wait for gold to drop to the lowest possible price before it soars to get the highest return on your investment.