After a series of cuts, the Federal Reserve Open Market Committee decided to hold rates steady at its meeting yesterday. This was the right move. Your Survival Guy isn’t a fan of cutting rates further for now. Savers need to be paid for lending their money, and when rates are pushed artificially low, it forces them to take risks they might not otherwise.
You can see on my chart below that 3-Month T-bill rates are falling rapidly away from 10-year Treasury yields. As that happens, savers looking for yield may buy riskier long-term debt or stocks to reach their income goals.
The 3-month T-bill, Dick Young’s “North Star,” is the baseline risk-free rate of return.
To push the rate down, the Fed creates more dollars, lowering the value of the dollar in gold terms, and causing inflation. Today, the dollar is worth only 1/5418th or so of an ounce of gold. In 1970, you could buy 1/35th of an ounce of gold with your dollar.
During the post-FOMC meeting press conference, Fed Chairman Jerome Powell suggested that Americans should not “take too much message macroeconomically” from the change in prices of precious metals. In other words, ignore the skyrocketing price of gold and silver while the Fed potentially continues to cut rates again soon.
Action Line: When you want to talk about precious metals and bonds in your portfolio, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
