Today in gold news, the Federal Reserve will announce whether they are raising their benchmark interest rate. The announcement comes at 2:00PM Eastern time, in case you want to make a note, or watch your favorite investments to see how they react.
This Gold Enthusiast recently discussed how investors view interest rates, and the immediate impact rate changes have on gold prices. We’ve also discussed how gold prices do tend to rise in higher interest rate markets in the long term. This is because everything gets more expensive in high interest rate environments, at least up until the point that prices collapse.
That was the strategy Ronald Reagan and Paul Volcker used in the early 1980s to fight inflation. That effort was so successful some people think inflation can never come back, which this writer thinks is a naive view. Of course inflation can come back; inflation means prices go higher, and last time I looked everything is more expensive now than it was in 1985.
So to get back to important stuff for today: Your friendly Gold Enthusiast thinks the Fed will raise rates today, by 0.25% in keeping with prior increases. The stock market slumped after the last interest rate hike, so the Fed is not likely to do a double-raise today of 0.5%. That would be too risky for the current Fed. But they do need to keep inching up the interest rate while they can, if for no other reason than it gives them something they can take back if the economy suddenly tanks. Given the recent “best ever” employment report that’s not likely, but why chance it?