The S&P 500 shed more than $800 billion on Wednesday, falling 2.5 percent in a day’s trading after the Federal Reserve announced it would hike interest rates by 75 basis points. Despite the stock market’s reaction, the Fed is not done raising and tightening rates, according to Gary Wagner, editor of TheGoldForecast.com.
“They want to raise interest rates to at least 5 percent,” Wagner said. “It’s going to be really detrimental to economic prosperity.”
The Fed is tightening rates in response to high inflation, which stood at 8.2 percent in September. Wagner claimed that had the Fed started raising rates in 2021, economic “pain” could have been avoided.
“The Fed did not act in 2021 when rates started at 1.4 percent,” he said. “Back then, a quarter or half percent rate hike would have had a dramatic impact [on inflation].”
Wagner spoke to David Lin, host and producer at Kitco News.
Gold and the US Dollar
Gold, which is currently trading near $1,630 an ounce, is down 10 percent over the year. Wagner said investors are fleeing to the US dollar, which is seen as a safe haven, due to the uncertainty. This, combined with rising yields, has put downward pressure on gold.
“It’s like looking at a basket of bad apples and picking out the least bad apple, and that’s the dollar,” Wagner explained. “If you’re an international investor looking to park money, go to our debt and not other countries’ debt. This fact gives us the strength of the US dollar.”
He added that there is a “negative correlation between the dollar and gold” as they are viewed as replacement investments.
“The dollar has been sitting at a 20-year high,” he said. “It’s this extreme dollar strength that is forcing people not to look at gold as a safe haven asset that will appreciate in value.”
Watch the video above for Wagner’s gold price prediction for the next two years
Follow David Lin on Twitter: @davidlin_tv
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