Over the course of 2021, the United States Federal Reserve has communicated optimism with respect to the economic recovery from the Covid-19 virus and inflation as it looks to move toward tightening monetary policy. While the Fed’s position is that the recent spike in inflation across a range of products, services and metrics is a transitory or temporary occurrence, US businesses struggled to fill a record 10.1 million jobs in June. Large labor supply/demand imbalances tend to lead to wage increases as a means to attract workers, a signal that longer-term inflation is on the rise.
On the minds of many is the massive $3.5 trillion proposed infrastructure spending bill that has now made it through the House of Representatives. While some Democrats have said that they don’t think passing the bill would increase inflation, many on the other side of the aisle disagree.
What Happens When the Spending Keeps Going?
The Fed is continuing to run with $120 billion per month in bond purchases and it may be running out of options to avoid triggering a huge market reaction if it keeps kicking the can down the road before suddenly changing its strategy. For some investors and traders, the age-old store of value — gold — is, once again, becoming a highly attractive investment as a hedge against inflation and shifts in policy by the Fed.
If inflation is not as transitory as the Fed says, it may be forced to begin tapering bond purchases, which may trigger a massive stock market meltdown. Even if the Fed only begins to taper and does not commit to any interest rate hikes for the foreseeable future, gold along with other precious metals like silver and platinum could stand to see significant gains.
For direct precious metals exposure, investors look to acquire physical gold bullion and coins; however, for more leveraged exposure to gold and precious metals, investors look to gold derivatives and stocks such as mining or royalty companies.
Large-scale international miners like Barrick Gold Corp. (NYSE: GOLD), mining royalty companies, such as Royal Gold (NASDAQ: RGLD), exchange-traded funds (ETFs) like SPDR® Gold Shares (NYSE: GLD), and growth-oriented domestic exploration companies such as American Pacific Mining Corp. (CSE: USGD.CN) (OTCQB: USGDF) are all examples of unique ways for individuals to gain leveraged exposure to rising gold prices.
Investors and traders will continue to watch and listen during the upcoming Fed meetings in September, November and December to get a deeper understanding of where the U.S. economic system might be headed.
Photo on public domain by the Federal Reserve
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