Disclaimer: Bluehillresearch.com is a reader-supported site. We may earn a commission if you click on links and make a purchase. Opinions are 100% our own, and shouldn’t be considered as financial advice. 

Last Updated on December 2, 2023

As the Fed’s quantitative tightening program could be coming to an end at any moment (at least as many are speculating), many investors are wondering if now is a good time for gold investing.

Gold generally does well during times of high inflation or recessions, making it an ideal investment choice for those seeking diversification in their portfolios.

There are a variety of ways to invest in gold, such as through a Gold IRA, gold mining stocks, ETFs and physical gold purchases.

Reasons Why the Fed Might Pivot and Resume QE

a chart showing an economic crash

The Federal Reserve has two primary missions: price stability and maximum employment. To meet these goals, the Fed implements monetary policy adjustments such as raising interest rates or purchasing bonds to regulate financial markets.

If inflation rises and unemployment falls, the economy could overheat or deteriorate. To keep things running smoothly, the Fed implements both tight and loose monetary policies; raising rates when growth is strong and lowering them when activity is slowing down.

However, the Fed’s monetary policy has drawn much criticism. Some economists contend that quantitative easing – or large-scale asset purchases – are inflationary because a significant amount of money is being invested into stock markets which they anticipate will ultimately lead to higher prices.

Some, however, believe quantitative easing is a safe and successful way to stimulate the economy. They contend that people will invest more money if they know low interest rates will remain low for an extended period.

Some analysts predict the Fed may begin to ease up on monetary policy once the economy slows sufficiently, especially if this is due to an inflationary trend that won’t end soon. They think slow total and core inflation, house prices/rents falling, wage growth slowing, job openings decreasing and inflation expectations decreasing before it begins reducing rate hikes.

According to some experts, the Fed’s monetary policy will likely need to cycle between tightening and loosening several times before it decides when it can stop raising rates and start cutting them again. They must also observe key economic indicators slowing before investors are convinced inflation won’t return soon, according to some.

Ultimately, it will be up to you to decide the best investment options for you, and it’s always recommended you consult with a financial planning expert before making any decisions about your portfolio.

What it Will Mean for the Dollar if FED Resumes QE

If the Fed decides to resume quantitative tightening, it will reduce its balance sheet and start restricting bond reinvestment. This would begin to undo some of the effects of QE which was implemented after the Global Financial Crisis.

If the trend continues, higher long-term interest rates in the United States as well as an appreciation of the dollar could occur. This would likely prove detrimental to economic activity, potentially leading to a recession.

But it will also benefit the economy, keeping prices of goods and services affordable to consumers and businesses alike. Furthermore, it will support the housing market by making borrowing money for investments or expansion more accessible.

However, it’s essential to note that this strategy won’t completely eradicate inflation. In fact, it may cause it to rise above the 2% target set by the Fed itself.

The Fed has already purchased trillions of dollars worth of bonds, meaning they now own a substantial amount of debt that cannot generate any income on its own.

As these securities mature, they will be removed from the Fed’s balance sheet and their proceeds reinvested into newer ones. This process is known as ‘tapering’, and it will eventually come to an end.

Rebalancing the balance sheet takes time, but if the Fed tries to do too much at once, they could cause further economic issues. On the other hand, if they act prudently and strategically, they can avoid a recession while still accomplishing many positive initiatives.

Reasons to Buy Gold and Silver with a FED Pivot

Augusta Precious Metals
apm
9.8/10Our Score

Want to Purchase Gold with Your IRA or 401k?

Here's Why We Recommend Augusta Precious Metals:

  • A+ Rating and Zero Complaints Registered with Better Business Bureau 
  • No High-Pressure Sales Tactics
  • Welcome Webinar from Harvard-Trained Economist
  • Simple 3-Step Process to Get Started

"I diversified my retirement with precious metals from Augusta. You can count on them."

-Joe Montana, Hall of Fame Quarterback

When the Federal Reserve adjusts its monetary policy, it is known as a “pivot”. This shift in policies will have an impact on financial markets. Therefore, investors need to be aware when this occurs so they can make informed decisions about their investments.

Gold and silver prices have seen a substantial spike since early November, suggesting further gains could be expected next year as the Fed begins to ease up on its hawkish policy. A Bloomberg Intelligence senior macro strategist anticipates prices could reach over $1,700 an ounce by 2023.

Investors may be tempted to purchase gold as a hedge against potential recessionary worries. However, investing in gold during times of economic uncertainty is an unwise move and should be avoided.

Over the past several years, the Fed has been steadily raising interest rates. This hawkish approach has caused investors to become wary of a recession, prompting them to express their desire to slow down rate increases.

If the Fed can pivot from its tight monetary policy, this could help the economy avert a recession. A recession would have an adverse impact on economic activity and cause financial markets to crash.

A Fed pivot can not only benefit the economy, but it also means inflation will be controlled. This helps maintain prices and promotes higher asset values as well.

Investors should look to invest in assets with sound fundamentals as the Fed pivots. Gold and silver are ideal for doing this since they provide portfolio diversification and can protect you against potential losses caused by a Fed pivot.

Best Options for Buying Gold and Silver

a stack of gold and silver bars

If you’re in search of an investment opportunity in gold or silver, there are a variety of methods. You can purchase physical gold through coins or bars, or invest in shares of an exchange-traded fund (ETF) that tracks gold prices.

Investing in physical gold and silver can be a great way to diversify your portfolio while adding value. But before making any decisions, it is essential to comprehend the pros and cons of each option. That way, you can decide which option best suits your individual needs.

Gold IRAs

Gold IRAs offer investors an easy way to purchase gold and are a popular choice for those seeking to add it to their investment portfolio. However, keep in mind that maintaining a gold IRA can be costly; you’ll need to pay a custodian who stores and insures your gold, as well as annual fees for management.

Mining Stocks

Investing in stocks that mine gold and silver is a popular choice for investors who wish to own precious metals. This allows you to benefit from rising prices, but it may be risky and time-consuming.

ETFs

Gold ETFs are an attractive option for many investors, as they provide exposure to gold without needing physical assets or buying futures contracts. This type of investment can be beneficial if you don’t have much money to invest.

Physical Gold and Silver

Depending on your risk tolerance, you may be interested in purchasing physical gold. This can be done through bullion coins or bars held in an IRA or brokerage account. It’s essential to note that while gold and silver may provide excellent portfolio diversification opportunities, they also tend to be highly volatile assets.

Learn more about buying physical gold and silver, as well as precious metals IRAs with a free gold investing kit from Augusta Precious Metals:

Summary

Gold prices have surged as investors anticipate the Federal Reserve may soon scale back its current aggressive monetary policy strategy. At their December meeting, they declared a 50-basis point hike, which is slightly less than previous 75-basis point increases they have implemented over recent months.

Even if the Fed opts to be more moderate with future rate hikes, inflation remains high by historical standards. While recent inflation data has provided some relief that prices are on track to peak, inflation remains higher than its target rate and is projected to keep increasing significantly over the coming years.

If the Fed fails to adjust its monetary policy stance in a timely manner, it could trigger an unnecessary deep recession. That’s because people will become less accepting of higher rates once they begin damaging the economy.

Therefore, having a strategy in place is essential if the Federal Reserve decides to undertake a pivot. A pivot occurs when the central bank ceases tightening monetary policy and begins easing it.

A pivot isn’t necessarily a bad thing and could actually prove beneficial for the economy. It does this by decreasing inflation and encouraging more investment, while also lowering interest rates to levels which won’t harm the economy too much.

As the dollar continues to strengthen and Treasury yields rise, investors may turn more toward gold as a way of protecting themselves against these potential hazards. Gold is currently trading at its highest level in seven months – not far off its all-time high – making it one of the best ways to safeguard assets during a recession. Plus, since gold doesn’t correlate with either currency or Treasury yields, you don’t have to worry about inflation when purchasing this metal.

Interested in learning more about your options with gold and silver investing? Get started with a free gold investing kit from Augusta Precious Metals: