Joe Elkjer
Precious Metals Advisor
Joe Elkjer, a Precious Metals Advisor at Scottsdale Bullion & Coin since 2019, specializes in helping clients protect their assets through tangible investments. With a strong background in business and finance, he emphasizes stellar customer service and stays dedicated to informing clients about market impacts through frequent appearances on The Gold Spot.
Damian White
Sr. Precious Metals Advisor
Damian White is a Sr. Precious Metals Advisor at Scottsdale Bullion & Coin. With a background in business and finance, he transitioned from real estate finance to focus on precious metals in 2016. Damian is dedicated to educating investors on the benefits of gold and silver, emphasizing the importance of wealth preservation and proper asset allocation.
July has been full of political and economic fireworks as the country heads into the most contentious election in recent memory with the economy ablaze. Jerome Powell’s testimony to Congress this week provides a timely glimpse into what’s in store for investors in the not-so-distant future.
In this week’s The Gold Spot, Precious Metals Advisor Joe Elkjer and Sr. Precious Metals Advisor Damian White explain the “powder keg” that explode after lifting the burden of rate hikes and what that means for gold and silver prices.
Powell’s Testimony
In front of a skeptical and scrutinous Congress, Federal Reserve Chair Jerome Powell admitted the government’s failure to combat inflation, which remains above the 2% target. His assessment of economic health was characterized by caution, highlighting a slow job market and stressing the need for more data. Although no timeline was provided, Powell’s remarks suggest possible rate cuts lie just beyond the horizon. In response, gold prices popped nearly $50, indicating what’s coming down the pike.
The Trigger for Rate Cuts
The Fed’s aggressive rate hike strategy is weighing heavy on the economy. The housing market is getting squeezed, companies are laying off employees, and people are struggling to keep up with the runaway cost of living. When the economic pain becomes too acute, the Fed will likely opt to lower interest rates regardless of inflation. This is especially true in an election year where 31% of Americans say inflation and the economy are the biggest issues on the docket.
Rate Cut Timeline
Again, the Fed remains unclear on its timeline for incoming rate slashes. However, it’s reasonable to assume it’ll happen sometime this year. There’s a potential for these welcoming cuts to come at the end of this month, or more likely, in September 2024. The worse the economy gets, the more pressure the Fed will feel to step in.
Regardless, our fiscal czars have a poor track record of timing interest rates with economic demands. By the time the desired data comes in, it’s already too late. There’s a months-long delay between the actual rate cuts and their positive economic effects.
Right now, short-term rates exceed long-term rates, resulting in a yield curve inversion — one of the deepest in the country’s history.
Virtually every time this happens, the economy enters a severe recession. This occurred in the post-pandemic economy, the housing bubble, and the dot-com crash.
We’re headed towards a recession regardless of what any economists are saying.–
All-Clear for Gold & Silver Prices
The second it’s clear the economy is tipping into a recession, the Fed will have no choice but to start cutting rates. This will give the all-clear for gold and silver as equity markets begin to crack. When an exogenous event hits the economy, people dive into save haven assets such as precious metals. This trend has played out many times in the past with the regional bank crisis, the pandemic, and the Russian invasion of Ukraine.
Inevitably, this surge in demand drives up silver and gold prices. However, dealer premiums go up too. Getting in sooner ensures a higher return in the long run and lower costs. The transition from mainstream investments to physical assets starts slowly but skyrockets when the yield curve flips.
Don’t Wait to Buy Gold (and Silver), Buy Gold (and Silver) and Wait
Gold and silver have already shown tremendous strength this year, hitting several highs along the way. In fact, many experts have had to raise their gold price predictions given the yellow metal’s record-setting performance. Citi Bank and Bank of America see gold hitting $3,000 an ounce soon. Silver prices outperformed both gold and the S&P 500 in Q2, demonstrating the shiny metal’s momentum.
“You want to be positioned in gold before the stampede.”
Damian White
Sr. Precious Metals Advisor
Question or Comments?
If you have any questions about today’s topics or want to see us discuss something specific in a future The Gold Spot episode, please add them here.
Comment
Questions or Comments?