The Fed Raised Interest Rates. Now What?

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Not only has the Fed raised interest rates, they want to keep on doing it through 2018. Can our economy sustain the ongoing increases?

The Fed Raised Interest Rates. Now What?

From Filip Karinja, for Birch Gold Group

This week, the Federal Reserve voted to raise interest rates a quarter of a percent to 0.5%, the first rate risesince 2006.

But this wasn’t the only bold announcement the Fed made. In a report released the same day, titled “Economic Projections“, they predicted that by 2018 they would raise rates to 3.3%.

It seems odd that they would come out with such a view on rates when, just last month, Janet Yellen said she would consider lowering rates into negative territory if the market was to fall considerably, like in 2008.

Considering the astronomic levels of our federal debt, having rates at 3.3% would be economic suicide; the United States simply would not be able to meet its obligations to its debt.

Interest rate target Federal Reserve The Fed Raised Interest Rates. Now What?

Projected Federal Reserve interest rate target (SOURCE)

So what does the Fed see changing in the next three years so positively — not only in the United States, but around the world — to be able to raise rates so sharply?

Here are the present day facts:

  • The global economy is beginning to contract, with many central banks already printing money like crazy and reducing rates into negative territory.
  • Retail sales have been falling short of expectations.
  • New housing has dropped off sharply.
  • The United States is becoming more polarized than ever — on politics, race, religion, etc.
  • The possibility of war in Syria and the Middle East region is ever intensifying, with nations taking turns dropping bombs all over the region.
  • Terrorism is increasingly spreading into the western world.
  • The threat of conflict with nations such as China, Russia, Syria and Iran is on the rise. Consider how Turkey shot down a Russian jet earlier this month.
  • Youth unemployment in Europe is reaching worrying levels.

For some reason, none of these factors seem to be weighing in on the Fed’s projections for the coming years. But ask yourself: How many of these problems do you think will be solved any time soon?

If you think any of this is overly cynical, take a look at this video, from Mr. Positive himself, motivational coach Tony Robbins. In it, he explains the nation’s debt problem and how there is no solution for it. Even if the rich were to be taxed a full 100% on earnings, it would not put a dent in the deficit.

Now, pretend you’re over two years in the future, in 2018. Would you guess that the debt will increase or decrease?

With the debt already so absurdly high, if the Fed moved rates out to 3.3%, the interest on this debt would be practically impossible to pay.

So put yourself two years in the future, and think about what it may hold for our nation. If you have any concerns, you may want to consider protecting your savings with some precious metals. Give us a call — we’re ready to help.

Is the bond market the next shoe to drop in Wall Street? Read why here.

photo credit: Perspectived, lines, madame #instaprol via photopin (license)

China’s Next Power Play For The Gold Metal

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CHINA IS TAKING ONE OF ITS BIGGEST STEPS YET TO SOLIDIFY ITSELF AS THE WORLD’S TOP GOLD CONSUMER. WHAT WILL THIS MEAN FOR THE FUTURE OF THE METAL?

China’s Next Power Play for the Gold Metal

This week, Your News to Know rounds up the most important news stories from the gold market. Stories include: China to launch gold benchmark in April, one chief economist remains optimistic on gold, and why gold makes for a great gift this holiday season.

CHINA DELAYS LAUNCH OF ITS GOLD BENCHMARK FOR APRIL

News of a yuan-denominated gold benchmark has been circulating for months. The launch was supposed to happen before the end of this year, but India’s Economic Times now reports that two sources close to the matter claim the benchmark will go live in April 2016.

“It will start in April with Chinese banks and some foreign banks,” one source inside a local bank said. “Jewellers, miners and banks could use this price as a benchmark.” The Shanghai Gold Exchange (SGE) has not yet made itself available to comment and has neither confirmed nor denied this.

The decision to launch a yuan-backed gold benchmark is seen as a power play, as China feels it should be a price-setter for the metal given its market weight. While a yuan fix won’t immediately rival those coming from London and New York, it stands to become a legitimate threat if the Chinese currency becomes fully convertible.

China recently made an unprecedented move of allowing foreign banks to trade yuan-denominated contracts on the SGE and also gave them import licenses, no doubt to increase the likelihood of these banks participating in the benchmark-setting process, which is another condition for its success.

ECONOMIST REMAINS OPTIMISTIC ON GOLD IN 2016

The most recent China Gold & Precious Metals Summit held in Shanghai saw many analysts express their view on what the future has in store for the yellow metal, especially in the wake of the recent rates hike.

As seen on Forbes, many of them expressed neutral or negative short-term outlooks, with a more positive long-term view. The factors that could weigh down on gold’s price in the near future included: lackluster sentiment by traders and investors, the absence of inflation, continuing strength of the dollar and the possibility of two to four additional rate hikes in 2016.

Yet not all analysts were bearish in the short-term. Martin Murenbeeld, chief economist for Dundee Capital Markets, remained optimistic, as he said he doesn’t expect any additional raises of interest rates in 2016. He added that some attendees even called for a ‘relief rally’ that would move gold’s price back above $1,200 before year’s end.

Douglas Groh, another presenter at the summit, was pessimistic on the dollar rather than gold: “He argued that buying low, as in buying right now, is what investment is all about,” Murenbeeld reminisced.

As the conference was held in Shanghai, there was no shortage of Chinese presenters who were bullish on gold and bearish on the greenback. Murenbeeld quotes Lu Dongshang from the Shandon Zhaojin Group Co. saying that the “U.S. dollar and U.S. dollar assets is ‘futureless’; the ‘overlord’ status of the U.S. dollar is being challenged, and the U.S. monetary system will experience a complete crash”, encouraging Chinese investors to turn to gold instead.

WHY LAWRIE WILLIAMS FEELS GOLD IS A GREAT GIFT FOR THIS FESTIVE SEASON

According to Lawrence Williams, gold is the perfect gift for this festive season. After all, in Christian tradition, gold was one of the three gifts that baby Jesus received, and Williams reminds us it has held up much better than the other two (frankincense and myrrh) over the years.

Members of virtually every religion and even those of little faith have always had a deep-seated appreciation for the metal. The reason Chinese and Indian religious festivals stand out from the crowd is the two countries’ enormous populations – a small amount of per capita consumption adds up to a massive national total.

With how quickly China’s economy is growing and with signs of improvement for India as well, these two countries are sure to remain the most prominent connoisseurs of the metal. More and more Chinese people are ‘dragged into’ the middle class, as evidenced by Chinese consumers spending more on their “Singles’ Day” than U.S. citizens did over the entire Black Friday/Cyber Monday weekend. Compared to Westerners, Asians are far more likely to allocate some of their ‘spending money’ to gold in one of its many forms.

While gold is no less prominent in the West, it’s certainly less favored, as Western investors have a taste for the quick returns that could potentially come from equity markets. Yet many are now worrying how much time the stock bubble has left, bringing Williams to another reason why gold makes a stellar gift for these (and any other) festive times. Aside from its past and present appeal, at its current price of $1070 per ounce, the metal’s potential for value growth is “inordinately strong”. A single event could be sufficient to remind Westerners of gold’s safe-haven appeal, in turn allowing it to regain its fondly-remembered upwards momentum from a few years back.