Following the Federal Reserve’s Federal Open Market Committee (FOMC) meeting on December 13, 2023, we received two main pieces of news: One was expected, and one may have come as a surprise.
First, the Federal Reserve elected not to cut federal funds interest rates from their current range of 5.25%–5.5%. That’s the part of the meeting that was expected. But then came the surprise: projections by the Fed that pencil in three interest rate cuts in 2024.
The Federal Reserve may be changing directions in its battle against inflation.
In contrast to months of “higher for longer” rhetoric from the Fed, these new rate projections indicate that our nation’s central bank may be ready to shift into a dovish direction regarding future policy. Over the past year, the Federal Reserve raised interest rates to their highest level since 2001.
Those of us who have been closely watching financial news and market data saw this coming—or at least we expected some shift in monetary policy. The Consumer Price Index (CPI), for example, slowed to 3.1% in November—a sign that the economy was getting close to the Federal Reserve’s target inflation range of 2%, possibly negating any need to continue increasing rates.
That said, it was still a bold move on the FOMC’s part to publicly project three interest rate cuts in 2024.
This perceived change has already rallied gold.
In the hours immediately after the FOMC statement came out, the price of gold rallied 2.7% to reach $2,050.20/oz. before the end of the trading day. In the days that followed, gold prices continued their hot streak.
I spoke with our President, former U.S. Mint Director Philip N. Diehl, about the gold rally. He noted that “gold popped $50 in a matter of hours on news that the Fed intends to cut rates next year. The same thing occurred last month when the good CPI report came in.” In other words, the Federal Reserve’s new policy direction could continue pushing the price of gold higher.
If you’re scratching your head right now, I understand. After all, gold is most often touted as a hedge against market uncertainty, not as an asset that experiences growth along with economic growth. But gold’s history of growth over the long term includes both times of recession and economic prosperity.
Plus, a potential cut in interest rates may weaken the dollar and the yield paid on U.S. Treasuries—factors that often increase the appeal of physical gold as an alternative store of wealth.
And that’s not even the whole story.
Over the long term, gold has even more room to grow.
While this potential shift in Federal Reserve policy may be a catalyst for higher gold prices in the next year—and that’s very exciting to talk about—I can’t understate how important it is to recognize gold’s true power: long-term growth and wealth protection. To me, these are the real reasons to add gold to your portfolio, not short-term price jumps.
Long-term trends supporting gold prices, like central bank demand, de-dollarization, geopolitical tensions, and the world’s diminishing supply of gold left to extract, all have the potential to raise gold prices and help protect your financial legacy for years and decades to come.
In other words, I believe the best is yet to come for gold, which is why now may be the perfect time to expand the gold allocation in your portfolio.