September 25, 2024
The Fed Just Shifted Gold into Overdrive
Dear Subscriber,
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| By Sean Brodrick |
Gold just hit a new record high yesterday. And this latest rally in precious metals has a lot more shine left in it.
How much? I firmly believe gold will more than double in the next few years. This should send select miners to the moon.
That means you need to own gold and gold miners. And you need to buy them now.
Otherwise, you’ll be left watching as your friends and fellow investors ride those golden rockets sky-high.
Plenty of longer-term forces drive gold higher: Declining ore grades, fewer discoveries and rising consumer demand in India and China are three obvious reasons.
But today, I want to talk about a major force that will shift gold into overdrive in the next few months.
More Interest-Rate Cuts
I sometimes talk about gold and the U.S. dollar being on opposite ends of the “Seesaw of Pain.” When one goes up, the other hits the ground.
Now, the once-mighty greenback is in trouble and looks ready to kiss the pavement.
And we have the Federal Reserve to thank for that.
By the end of this year, benchmark U.S. interest rates will fall another half-percentage point (50 basis points) from the current level between 4.75% and 5%. That’s according to FOMC projections.
The lower interest rates go, the less attractive the dollar looks compared to other currencies. This tends to drive the dollar lower and gold higher. And the Fed has signaled more rate cuts are coming.
Looking forward, using the latest projections from the FOMC’s “dot plot,” interest rates will drop another percentage point throughout 2025.
The Fed is now pricing in roughly 2% — or 200 basis points — of reductions to the Fed’s benchmark rate through mid-2026, with the benchmark rate bottoming out at 2.8% in June 2026.
The market agrees — sort of — but thinks the Fed will cut rates even faster!
According to Fed Fund futures, rates will bottom about a year earlier than the actual Fed forecasts.
Could the Fed’s schedule of benchmark rate cuts catch up to where the market thinks it should be? A lot depends on the data.
One clue may be that Fed Chair Jerome Powell was more dovish in his remarks last week than many thought he would be.
And just this past Monday, Chicago Fed President Austan Goolsbee said he expects “many more rate cuts over the next year.”
Goolsbee added, “If we want a soft landing, we can't be behind the curve."
Sure, not everyone at the Fed agrees. Fed Governor Michelle Bowman was the sole dissent on last week’s rate cut. And just yesterday, she said she wants to be more cautious.
But she is in the minority at the Fed, which seems to be leaning toward more and faster cuts.
Perception & Anticipation
Why does this matter?
Because the perception that we will have faster rate cuts weighs on the U.S. dollar.
The greenback already slid in anticipation of the 50-basis-point cut last week. The U.S. dollar index is now trying to bounce from late 2023 support.
I expect this bounce to fail as anticipation of future rate cuts comes into play.
The only reasons the dollar is bouncing now are profit-taking among dollar shorts and the very short-term nature of many traders in the FX markets.
Eventually, the greenback should roll over again and slump even lower.
Since gold is priced in dollars, that will drive gold higher. And that goes double for select miners leveraged to gold as their profit margins widen like the Grand Canyon.
In fact, gold miners are already outperforming the yellow metal. This performance chart compares gold and miners over the past three months.
I’ve put the S&P 500 on this performance chart, too, so you can see how gold and gold miners are doing compared to the leading index.
In the past three months, the S&P 500 is up 4.97%. Not bad!
Gold is up 13.14% at the same time — great!
And gold miners, as tracked by the Van Eck Gold Miners ETF (GDX), are up a whopping 17.75%. Awesome!
If you bought when I first signaled getting in, you’d already be up 24.9%. That’s more than double the 9.54% the S&P 500 has racked up at the same time.
The fact is precious metals and miners are where you want to be in 2024 — especially with the Fed cutting rates.
I sent my Wealth Megatrends subscribers a special gold report stuffed with fantastic picks a few weeks ago. Those picks are already ripping higher.
If you’d like that report — along with all the other great things you get with Wealth Megatrends — CLICK HERE.
All the best,
Sean
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