There’s a lady who’s sure all that glitters is gold, so why doesn’t she have it in her portfolio?
Yes, there are two paths you can go by…
The world’s most precious metal is not only a safe haven when stocks are falling, it is also a classic hedge when inflation expectations are rising. Yesterday’s update from the Federal Reserve Bank in the United States revealed that they are willing to allow inflation to surpass their earlier target of 2%.
And it’s whispered that soon, if we all call the tune then the piper will lead us to reason and a new day will dawn for those who go long and the markets will echo with laughter.
In a word, she can get what she came for. There are signs are on the wall but if you want to be sure. Someday all of our portfolios will be diversified.
It makes me wonder…
Today’s Highlights
If you listen very hard
The lead into the Fed announcement (purple circle) was rather positive but once the FOMC statement was released we can see that the markets quickly returned to the monthly lows.
Even though many see the announcement as unimportant, the impact of what the Fed is saying is rather large. For years they have had their sights set on annual inflation just under 2% but not to overshoot.
To be clear, the Fed doesn’t exactly control inflation. They simply introduce new money into the system, then they can try to curb inflation by raising interest rates.
So by saying they’re willing to allow inflation to go over 2% they want the markets to hear that they won’t be in a rush to raise interest rates. A careful listener, however, might infer that the Fed is actually expecting inflation to grow further from here.
So in the medium term, over the next few years, we are likely to see the Fed continue to raise their rates, especially if inflation gets stronger. And the markets don’t like that.
