Gold continued to consolidate around $1,950.00 per ounce last week, closing at $1,974.90 per ounce on Friday (see the following chart).
This continued consolidation may present a buying opportunity in the current gold bull market. After evaluation of the Federal Reserve’s statement on Thursday (August 27), the same long-term factors that support this bull market remain in place.
Fed Chairman Jerome Powell put forth a major policy change in how the central bank will deal with inflation going forward. Instead of its previous target of an average of 2% inflation over time, the central bank will now allow periods of inflation over 2%, offset by previous periods of weaker inflation.
This means the Fed will allow inflation to run higher than previously before increasing interest rates. Says Powell, via CNBC, “Many find it counterintuitive that the Fed would want to push up inflation. … However, inflation that is persistently too low can pose serious risks to the economy.”
This change means that the Fed will be keeping interest rates low in the future, even negative in real terms. This could weaken the U.S. dollar and lead investors to increase gold allocations in their portfolios.
Rick Andrews is president of Avant Capital Management.