Why the Fed Can’t Stop the Runaway Bull Market in Gold

Gold continues to quietly move higher without attracting too much attention (well, other than from a few Billionaires anyway).

See what happened earlier this morning in the gold market and why what interest rates do this year might be be that significant as far as a bull market in gold goes…

Why the Fed Can’t Stop the Runaway Bull Market in Gold

By Justin Spittler

Gold just set its most important high in two years.

This morning, the price of gold topped $1,300 for the first time since August 2014. Gold is now riding a six-day winning streak, and is just a few percentage points from setting a new two-year high.

If you’ve been reading the Dispatch, you know gold stormed out of the gate this year. It jumped 16% during the first three months of the year, its best quarter in three decades.

Then, gold cooled off. It went nearly two months without setting a new high.

We told you it was healthy for gold to take a “breather” after such a hot start to the year. But we also said it would likely head higher soon. We encouraged readers to use the break in the action as a buying opportunity.

Last Tuesday, gold started rallying again. It’s up 22% on the year.

• The Federal Reserve gave gold a big push yesterday…

Yesterday, the Fed said it will keep its key interest rate at 0.38%…well below its historic average of 5.0%.

The Fed slashed rates in 2008 to encourage borrowing and spending. It’s kept them near zero for eight years in an effort to “stimulate” the economy.

It hasn’t worked. The U.S. economy is growing at its slowest pace since World War II. And America’s real median household income is about $2,500 lower than it was in 2007.

The Fed effectively makes money “cheap” when it keeps rates low. That’s bad for the U.S. dollar, which is a paper currency. Yesterday, the U.S. Dollar Index, which tracks the dollar’s performance vs. major currencies like the euro and Japanese yen, fell 0.4%. It’s now down 4.2% on the year.

As regular Casey readers know, what’s bad for the dollar is good for gold. That’s because gold is real money. It’s protected wealth for centuries because it has rare set of qualities: It’s durable, easily divisible, and easy to transport. No matter where you go, folks immediately recognize gold’s inherent value.

• Many investors thought the Fed would raise rates…

Last month, Fed Chair Janet Yellen said a rate hike was likely “in the coming months” if the economy improved.

A week later, the Labor Department said U.S. companies are hiring at the slowest pace since 2010. The miserable May jobs report was the latest sign the economy is moving in the wrong direction.

Yesterday, Yellen hinted that “headwinds blowing on the economy” played into her decision to not hike rates.

• Yellen is also worried Britain will leave the European Union (EU)…

If you’ve been following the news, you’ve probably heard this is a possibility. The media is calling this scenario a “Brexit.”

According to CNNMoney, this also played into the Fed’s decision:

“Brexit…is something we discussed and I think it’s one of the factors that factored into today’s decision,” Yellen said. She said the U.K. decision could have consequences for the economic and financial conditions of the global financial markets and will play a role in future decisions.

Great Britain will hold a vote on June 23 to decide if it will stay in the EU or leave.

• The Fed still said investors could expect one or maybe two rate hikes this year…

Yellen even added that a July rate hike was not “impossible.”

Some investors think a rate hike would hurt gold. The thinking is that gold doesn’t pay a yield, so it becomes less attractive if rates rise. That’s because investors would rather own bonds and other assets that pay interest.

Our colleague Steve Sjuggerud says the conventional wisdom is dead wrong. As you may know, Steve is one of the smartest analysts in our industry. He’s got a PhD in finance…experience running a mutual fund and a hedge fund…and one of the best trading track records in the business.

In his short note below, Steve says the Fed’s decision shouldn’t affect gold’s rally. Gold is going to do what it wants.

Here’s Steve:

The next Federal Reserve rate hike is on hold… for now.

Yesterday, the Fed announced that they won’t raise rates this week. But they did tell us that at least one (and maybe two) rate hikes are possible through the end of the 2016.

If you own gold, this probably has you worried…

But should you be worried?

In short, no…

The last time the Federal Reserve raised rates was from 2004 to 2006. Rates went from 1% all the way to 5.25%.

If gold was truly affected by the Fed raising interest rates, then you would think that the dramatic move we saw from 2004 to 2006 would have a devastating effect on the gold price… right?

You’d be wrong. Gold was unaffected. Its price just kept going up while the Fed was raising interest rates. Take a look:

Specifically, exactly one year after the Fed’s first interest rate hike in 2004, gold prices were up more than 10%.

The story was the same the previous time the Fed started hiking rates… in 1999. One year after the Fed started hiking interest rates, the price of gold was up more than 10%.

Just because gold went up 10%-plus in a year the last two times the Fed raised interest rates doesn’t mean that it has to happen again…

We can’t say that gold will go up 10% or more. But we can say you shouldn’t worry so much about the Fed right now.

The last time the Fed started raising interest rates, gold was in a bull market. And higher rates didn’t hurt gold.

Today, I believe we’re in a new bull market in gold – one that would also be unaffected by interest rate hikes by the Federal Reserve, just like we saw from 2004 to 2006.

Look, the media might try to spook you about gold and the Fed in the coming weeks…

Pay no attention to it… You know the truth. Gold doesn’t care about the Fed, especially when gold is in a bull market.

• If you want to make big gains in this gold bull market, we suggest you check out Steve’s research…

That’s because Steve recently discovered a “Magic Number” that appears before EVERY big move in gold and even gold stocks.

According to his research, you could have used this number to make gains of 66%…382%…and an extraordinary 1,160% gain in one gold stock. There are countless examples like this.

You can learn more about Steve’s “Magic Number” by watching this short presentation. You will also learn how you can get access to Steve’s research for 50% off the regular price. This deal ends at midnight tonight, so you must act soon. Click here for more information.

• REMINDER: Casey Research founder Doug Casey will be in Poland this weekend…

Doug and International Man editor Nick Giambruno will be in Warsaw this weekend for the Polish launch of Doug’s classic book, Crisis Investing.

They will also be presenting at the “Alternative for Difficult Times” seminar on June 18 and 19. They’ll be discussing the impending global financial hurricane, the state of freedom around the world, and how you can protect yourself and even profit from these trends.

You can learn more about this event by clicking here.

Chart of the Day

Gold miners soared to new highs today too…

Today’s chart shows the performance of The VanEck Vectors Gold Miners ETF (GDX), a fund that tracks large gold stocks.

As you likely know, gold stocks are leveraged to the price of gold. A small jump in the price of gold can cause gold stocks to soar. Yesterday, a modest 0.5% jump by gold caused GDX to surge 3.9%. Today, GDX is up another 2.6%, and is now up 97% on the year. It’s trading at its highest level since August 2014.

That’s a huge move for such a short period of time. Remember, we’re not even halfway through the year. Still, gold stocks could just be getting started. During the 2000–2003 bull market, the average gold stock rose 602%. The best ones surged 1,000% or more.

Keep in mind, gold stocks are incredibly volatile. It’s not uncommon for a gold stock to swing 10% or more in a day. If you can’t stomach that kind of volatility, stick with physical gold. Its value could easily double or triple in the coming years.

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