The Federal Reserve Open Market Committee meeting starts today. What would be the big news is likely a foregone conclusion; The Fed is expected to announce a 0.25% rise in their base interest rate. If they do it will be the fourth such raise this year, fulfilling promises made back in 2017. In expectation, the dollar sagged Monday and is slightly lower again in premarket trading today.
What is more important though is the discussion of the outlook for 2019. Recent quotes from Fed chair Jerome Powell about “just below neutral” interest rates signaled a possible slowdown in appetite for interest rate hikes. If nothing else, we expect interest rate hikes will not happen as fast as they happened in 2018. What with the stock market, and indeed most markets, under pressure the Fed could be blamed for depressing the economy should they keep raising rates. And no one wants to be the bad guy, especially since getting blamed for ending the longest bull market in history would surely mark you for a while.
So we expect more accommodative language over the next two days, and we do expect to see a rate hike. This action would achieve 3 goals: (a) say they fulfilled their previous promise, (b) say the economy is now at a “normal” interest rate, and (c) say they’ve done their job. Which would put pressure on people to look elsewhere for reasons why stock valuations didn’t keep going higher like maybe they were too high already?
In any case, your Gold Enthusiast doesn’t have high expectations for this meeting. You have to think back nine years before you get to a time where The Fed really did only have to do their own job, rather than supporting banks and the market on artificially low-interest rates. Maybe it is time for some actual valuation to come into play.
Don’t worry about gold. Price action over the last week shows gold is fairly happy in the 1220-1250 range. Though interest rates have risen this past year gold has shown itself to be resilient, even rising strongly yesterday in the face of an expected interest rate range. You can expect gold to drop a bit on the announcement of a rate hike, but don’t expect it to drop too far.
Signed, The Gold Enthusiast
DISCLAIMER: No specific securities were mentioned in this article. The author is long NUGT and JNUG, in small position sizes that would not affect the market.
About the Author: Mike Hammer
For 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading GroupMore...