James Rickards: Will Gold Pop When The Fed Throws In The Towel?

By Remy Blaire

The prospects of a Santa Claus rally faded and the doom and gloom on Wall Street hinted at a big lump of coal in investors’ stockings. The final days of 2018 could bring wild swings at a time that is usually quiet and light on volume; but the writing may already be on the wall.

During the final full trading week of the year, the Federal Reserve hiked interest rates as widely expected. The target range for the benchmark funds rate was raised by 25 basis points to 2.25 – 2.5%. The central bank forecast two more rate hikes in 2019 and pulled back from the previously projected three hikes. The Fed cut its growth forecast and lowered the long-run funds rate outlook.

Many questioned the Fed’s logic that it is data-dependent. Plenty of dialogue and criticism regarding the FOMC’s reasoning swirled like a snowstorm in the days following the Fed announcement. Based on the data, how could the central bank forecast two hikes in 2019?

At the end of the final full trading week of 2018 U.S. markets got a boost as New York Fed President John Williams said the central bank could reassess its view on the economy in 2019. But those gains were short-lived as the major equity averages reversed course and headed back into negative territory.

Jim Rickards joined me at the NASDAQ MarketSite in the aftermath of the Federal Reserve announcement and just as Fed Chairman Jerome Powell commenced the press conference. Keep a close eye on the monitors in the background. You’ll notice the quick shift in the equity averages — going from green to red in just a matter of minutes.

Rickards and I covered plenty of ground in the interview segments. It doesn’t take a stealthy sleuth to figure out the chronology of the interviews. Towards the end of the last interview you’ll notice that the Dow Jones Industrial Average, S&P 500 and the NASDAQ Composite Index are deep in negative territory and down at least 1.5%. That’s quite the decline within a few short minutes.

There has also been a lot of chatter about the impact of President Trump’s tweets on the markets and the direction of the Federal Reserve. Rickards gave us his take on the tug of war between the broader market and the political sphere in Washington D.C. He offers his take on the “pause factors” that would affect the FOMC’s policy trajectory.

Interview segment with Jim Rickards taped on December 19, 2018: CLICK HERE.

GOLD REGAINING ITS LUSTER

It was a volatile year across all markets and precious metals were no exception. The yellow metal is improving and is about to close out its best quarter in almost two years. Sentiment for the traditional safe haven has slowly gained traction following its bottom this summer.

At a time when returns on most asset classes are dismal and performance in futures and ETFs are less-than-stellar, many are left asking why support for gold hasn’t been as strong.

Rickards says gold is “defying headwinds right now but watch what happens when headwinds turn into tailwinds.”

Rickards reflected on the performance of spot gold prices in a tweet:

In the current political and geopolitical landscape there are more headwinds than tailwinds being monitored. Uncertainty over the outcome of the U.S.-China trade war at the end of the 90-day truce combined with the potential of a partial government shutdown do little to boost prospects for growth in the New Year.

Gold is favored by investors seeking diversification and protection from risk. As the bearish conditions for the precious metal continue to shift to more favorable ones, gold may find support not just based on Fed policy and the value of the U.S. currency.

Ahead of the Christmas holiday weekend, Jim Cramer stated that “there’s a bull market in gold … I feel powerless, just like 2007.” Many investors may feel as though there’s nowhere to hide. That sentiment may be a potential harbinger of things to come.

It’s a crowded market for post-Fed commentary and market predictions for 2019 but without a crystal ball only Santa’s elves know what’s in the making for next year’s proverbial workshop.