FOMC Signals Another Rate Hike and Raises Rate Projection for 2024
Yesterday, the Federal Open Market Committee (FOMC) concluded their September meeting, opting to leave rates at their 22-year high. However, they clearly signaled that another rate hike is imminent before the end of the year. In addition, the FOMC raised its projection for 2024 rates from 4.6% to 5.1%. As a result, the US dollar surged while gold experienced a decline.
Gold's Modest Gains Reversed After FOMC Statement
Before the release of the FOMC statement, gold had experienced modest gains, reaching its highest level in two weeks at around $1,950 per ounce. However, following the statement, gold continued to suffer losses for a third consecutive day, trading at around $1,925. This downward trend was expected given the hawkish stance of the FOMC, which expressed a clear commitment to at least one more rate hike this year and an expectation of high rates well into next year.
FOMC Dot Plot Indicates Hawkish Shift
Notably, while the FOMC statement from September closely resembled the July statement, the dot plot revealed a different story. The FOMC dot plot is a set of projections from committee members regarding the economy and monetary policy. It provides insights into future rate decisions. Comparing the June and September dot plots, an evident hawkish shift is observed. The projected federal funds rate for 2024 increased from a range of 4.875% to 5.375%, as opposed to the previous range of 4.375% (the highest frequency in June).
The Fed's Optimism and Conflicting Views on Inflation
The Fed's statement reflects a sense of optimism regarding the economy, as it projects a growth rate of 2.1% for this year, which is a significant improvement from the previous projection of 1% in June. The Fed also believes that high interest rates are not causing a recession, contrary to the opinions of some individuals who predicted otherwise.
However, the Organization for Economic Cooperation and Development (OECD) disagrees. The OECD downgraded its economic forecasts for next year, citing the increasing impact of tighter monetary policy. The OECD states that business and consumer confidence are declining, and the rebound in China has faded. Despite these conflicting views, the Fed remains committed to battling inflation for the next couple of years, even though its own projections do not anticipate a return to its 2% target until 2026.
A Confusing Day for Market Observers
The FOMC's plans have left market observers perplexed. Economist Mohammed El Erian expressed concerns about the confusion and conflicting signals coming from the Federal Reserve. The response from the market, including the fall in equities, the increase in Treasuries, and changes in oil prices, indicates that trillions of dollars' worth of assets were repriced based on projections that will likely prove to be incorrect. The market will soon discover the inaccuracies of these projections as data is revised and new statements are made.
A Global Issue of Unsustainability
The lack of control and sustainability is not limited to the US. Economies around the world are facing unsustainable positions. The Institute of International Finance's global debt monitor report highlights the increase in borrowing as a share of GDP, rising to 336% in June this year. Higher interest rates are further escalating borrowing costs and straining governments.
Ultimately, a few interest rate hikes and optimistic statements about the economy cannot address these underlying issues. Therefore, the reaction of gold and the FOMC's actions should not be a cause for concern. The statements and projections made by central banks are essentially speculative calculations with no firm foundation in reality.
Uncertainty Continues with the Bank of England
While the focus has been on the FOMC, the Bank of England is also meeting soon. Initially, it was anticipated that the Bank of England would hike rates for the 15th consecutive time. However, improved inflation data indicate a shift in market expectations. Market reactions demonstrate concerns not only about the UK but also about the Eurozone following the European Central Bank's rate hike announcement. Currencies, such as the Euro, should typically perform well after rate hikes, but recent events suggest otherwise.
The Final Word
Ultimately, very little is under control in the current economic landscape. No definitive solutions are being offered, and statements and projections should be viewed with caution. The uncertainties and challenges faced today highlight the need for a more sustainable approach to economic policies around the world.
The Curious Case of Liz Truss
Some ponder whether the UK acted hastily by removing Liz Truss from her position. In a recent speech defending her tenure as the UK's shortest-lived prime minister, Truss acknowledged the role of central banks in fueling the system with excessive government spending through artificially low interest rates. This statement bears consideration and begs the question of whether policymakers truly have control over the current economic situation.
The post Gold Slips as Fed Signals More Hikes to Come appeared first on GoldCore News.
Frequently Asked Questions
How is gold taxed within a Roth IRA
Investment accounts are subject to tax based only on their current value and not the amount you originally paid. If you invest $1,000 in mutual funds or stocks and then later sell them, all gains are subjected to taxes.
However, if the money is deposited into a traditional IRA/401(k), the tax on the withdrawal of the money is not applicable. You pay taxes only on earnings from dividends and capital gains — which apply only to investments held longer than one year.
These accounts are subject to different rules depending on where you live. For example, in Maryland, you must take withdrawals within 60 days after reaching age 59 1/2 . Massachusetts allows you to wait until April 1. And in New York, you have until age 70 1/2 . To avoid penalties, you should plan ahead and take distributions as soon as possible.
Should You Invest in Gold for Retirement?
It depends on how much you have saved and if gold was available at the time you started saving. Consider investing in both.
You can earn potential returns on your investment of gold. This makes it a worthwhile choice for retirees.
Most investments have fixed returns, but gold's volatility is what makes it unique. Therefore, its value is subject to change over time.
However, this does not mean that gold should be avoided. You should just factor the fluctuations into any overall portfolio.
Another advantage to gold is that it can be used as a tangible asset. Gold can be stored more easily than stocks and bonds. It can also be carried.
You can always access gold as long your place it safe. Plus, there are no storage fees associated with holding physical gold.
Investing in gold can help protect against inflation. Gold prices are likely to rise with other commodities so it is a good way of protecting against rising costs.
You'll also benefit from having a portion of your savings invested in something that isn't going down in value. When the stock market drops, gold usually rises instead.
Another advantage to investing in gold is the ability to sell it whenever you wish. You can also liquidate your gold position at any time you need cash, just like stocks. It doesn't matter if you are retiring.
If you do decide to invest in gold, make sure to diversify your holdings. Don't put all of your eggs in one basket.
Don't buy too many at once. Start small, buying only a few ounces. Then add more as needed.
The goal is not to become rich quick. Instead, the goal is to accumulate enough wealth that you don't have to rely on Social Security.
Gold may not be the most attractive investment, but it could be a great complement to any retirement strategy.
How much should precious metals make up your portfolio?
To answer this question, we must first understand what precious metals are. Precious metals refer to elements with a very high value relative other commodities. This makes them highly valuable for both investment and trading. Gold is by far the most common precious metal traded today.
There are also many other precious metals such as platinum and silver. The price for gold is subject to fluctuations, but stays relatively stable in times of economic turmoil. It is also not affected by inflation and depression.
The general trend is for precious metals to increase in price with the overall market. However, they may not always move in synchrony with each other. If the economy is struggling, the gold price tends to rise, while the prices for other precious metals tends to fall. Investors are more likely to expect lower interest rates making bonds less attractive investments.
Contrary to this, when the economy performs well, the opposite happens. Investors choose safe assets such Treasury Bonds over precious metals. They become less expensive and have a lower value because they are limited.
It is important to diversify your portfolio across precious metals in order to maximize your profit from precious metals investments. You should also diversify because precious metal prices can fluctuate and it is better to invest in multiple types of precious metals than in one.
Do you need to open a Precious Metal IRA
You should be aware that precious metals cannot be covered by insurance. You cannot recover any money you have invested. This includes all investments that are lost to theft, fire, flood, or other causes.
You can protect yourself against such losses by purchasing physical gold and silver coins. These items can be lost because they have real value and have been around for thousands years. You would probably get more if you sold them today than you paid when they were first created.
You should choose a reputable firm that offers competitive rates. You should also consider using a third party custodian to protect your assets and give you access at any time.
Remember that you will not see any returns unless you are retired if you open an Account. So, don't forget about the future!
Who has the gold in a IRA gold?
The IRS considers any individual who holds gold “a form of income” that is subject to taxation.
You must have gold at least $10,000 and it must be stored for at the least five years in order to take advantage of this tax-free status.
Gold can be used to protect against inflation and price volatility. However, it is not a good idea to own gold if you don't intend to use it.
If you plan to sell the gold one day, you will need to report its worth. This will affect how much capital gains tax you owe on cash you have invested.
A financial planner or accountant should be consulted to discuss your options.
Can I buy gold using my self-directed IRA
Your self-directed IRA can be used to purchase gold, but first you need to open an account with a brokerage firm such as TD Ameritrade. If you have an existing retirement account, you can transfer funds to another one.
The IRS allows individuals to contribute up to $5,500 annually ($6,500 if married and filing jointly) to a traditional IRA. Individuals can contribute as much as $1,000 per year ($2,000 if married filing jointly) to a Roth IRA.
If you do decide that you want to invest, it is a good idea to buy physical bullion and not in futures. Futures contracts can be described as financial instruments that are determined by the gold price. They allow you to speculate on future prices without owning the metal itself. Physical bullion, however, is real gold and silver bars that you can hold in your hand.
How does a gold IRA account work?
Individuals who want to invest with precious metals may use the Gold Ira accounts, which are tax-free.
You can purchase physical bullion gold coins at any point in time. You don’t have to wait to begin investing in gold.
Owning gold as an IRA has the advantage of allowing you to keep it forever. When you die, your gold assets won't be subjected to taxes.
Your gold will be passed on to your heirs, without you having to pay capital gains taxes. And because your gold remains outside of the estate, you aren't required to include it in your final estate report.
First, an individual retirement account will be set up to allow you to open a golden IRA. Once you've done that, you'll receive an IRA custody. This company acts as a middleman between you and the IRS.
Your gold IRA Custodian will manage the paperwork and submit all necessary forms to IRS. This includes filing annual reports.
Once you've established your gold IRA, you'll be able to purchase gold bullion coins. The minimum deposit is $1,000. However, you'll receive a higher interest rate if you put in more.
Taxes will apply to gold that you take out of an IRA. You'll have to pay income taxes and a 10% penalty if you withdraw the entire amount.
You may not be required to pay taxes if you take out only a small amount. However, there are exceptions. If you take out 30% of your total IRA assets or more, you will owe federal income taxes and a 20 percent penalty.
You should avoid taking out more than 50% of your total IRA assets yearly. You'll be facing severe financial consequences if you do.
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (lendedu.com)
- The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (aarp.org)
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
- Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
- 7 U.S. Code SS7 – Designation Boards of Trade as Contract Markets
- 26 U.S. Code SS 408 – Individual retirement funds
- Saddam Hussein's InvasionHelped Uncage a Bear In 90 – WSJ
- Do you want to keep your IRA gold at home? It's not legal – WSJ
Three Ways to Invest In Gold For Retirement
It is crucial to understand how you can incorporate gold into your retirement plans. If you have a 401(k) account at work, there are several ways you can invest in gold. You might also consider investing in gold outside your workplace. A custodial account can be opened by a brokerage firm like Fidelity Investments if you already have an IRA. If precious metals aren't your thing, you may be interested in buying them from a dealer.
These are the rules for gold investing:
- Buy Gold with Cash – Avoid using credit cards or borrowing money to fund investments. Instead, deposit cash into your accounts. This will help you to protect yourself against inflation while also preserving your purchasing power.
- Physical Gold Coins to Own – Physical gold coin ownership is better than having a paper certificate. The reason is that it's much easier to sell physical gold coins than certificates. You don't have to store physical gold coins.
- Diversify your Portfolio – Don't put all your eggs in one basket. By investing in multiple assets, you can spread your wealth. This will reduce your risk and give you more flexibility in times of market volatility.
By: Dave Russell
Title: Gold Slips as Fed Signals More Hikes to Come
Sourced From: news.goldcore.com/fomc-dot-plot-gold/
Published Date: Thu, 21 Sep 2023 10:25:12 +0000