NEW YORK (May 1, 2017) – Jeffrey Nichols, Senior Economic Advisor to Rosland Capital (www.roslandcapital.com), had the following comments today:

The big surprise in the world of gold thus far this year has been the metal’s lack of price volatility.  This despite:

  • All the uncertainty associated with a new, and somewhat maverick, president in the White House compounded by a dysfunctional and highly political Congress,
  • The coming withdrawal of Britain from the European Union and the possibility the French will follow suit by pulling out of the EU too,
  • The rising tensions between Russia and the United States on two fronts (Ukraine and Syria),
  • And, most recently, rising North Korean bellicosity, the real possibility the North will gain nuclear arms capability, and the risk of all-out war (accidental or intentional) in the East Asian region.

There was a time when any one of these developments would have been enough to send the gold price skyward.  But, apparently, no longer.

Gold
Stevebidmead / Pixabay
Gold

Instead, the gold market seems to shrug off these developments, keeping its eyes focused on the tenor of U.S. monetary policy, particularly the prospect for interest rates.

More precisely, what the gold market is really interested in these days is the “real” or “inflation-adjusted” interest rate. Even if the Federal Reserve boosts its Fed-funds policy rate, say by a quarter percentage point, if inflation expectations rise by more, this combination spells a more expansionary (or less restrictive) monetary policy.

Taking this a little further, business-cycle indicators – say, housing starts, employment data, consumer spending, or industrial production, for example – that point to a slower-growing economy, lead traders and investors to expect more accommodative (or less restrictive) monetary policies with lower real interest – and therefore higher gold prices.

Of course, the opposite is equally true – a stronger economy allows the Fed to raise nominal interest rates.  But, so long as these higher rates are exceeded by rising inflation expectations, in actuality, lower or even negative real rates will be supportive of a rising gold price.

We have long espoused the view that the U.S. economy is caught in a long-term multi-year period of secular stagnation characterized by slower than normal economic expansion with disappointing employment and wage growth for many.  Unless economic policy-makers and politicians recognize this reality, they will err on the side of excessive monetary growth with lower real interest rates – a favorable mix for gold investors but not a recipe for maximum prosperity for America.

About Rosland Capital

Rosland Capital LLC is a leading precious metal asset firm based in Los Angeles, California that sells all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of buying gold, numismatic gold coins, silver, platinum, palladium, and other precious metals. For more information please visit www.roslandcapital.com or subscribe to Rosland Capital on YouTube.

About Jeffrey Nichols

Jeffrey Nichols, Senior Economic Advisor to Rosland Capital and Managing Director of American Precious Metals Advisors, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.