Investing in Fear: Why the Fed Rate Hike Has Investors Turning to Gold and Silver for Security and Profit

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Few analysts and investors were surprised when the Federal Reserve raised interest rates by another 25 basis points. While the decision to hike rates comes as no surprise, it has already stirred up debate among financial experts.

Some argue that the move is a necessary step to combat inflation, while others contend that continuing to raise rates after the recent banking crisis could be detrimental to the fragile economic recovery. Amid this uncertainty, investors are turning to volatility hedges like precious metals as a way to safeguard their portfolios.

The market seems to believe that this may be the last rate hike in a while. The CME FedWatch Tool currently expects the Fed to halt rate increases starting with the May 13 Fed meeting. 

Chief Global Strategist and Head of the Global Market Insights Strategy Team at JPMorgan Asset Management David Kelly thinks that today’s hike was still too much, saying that the Fed is “clinging to hawkishness.”

Some analysts and the CME’s FedWatch Tool expect a drastic pivot from the Fed later this year, including rate cuts. Jerome Powell, the Chairman of the Federal Reserve, seems to disagree. During today’s press conference, he was asked whether the markets were wrong to expect rate cuts and responded with “that's not our baseline expectation."

In light of the Fed’s reluctance to pivot combined with the recent banking crisis, investors are bracing for potential market turbulence and looking for ways to protect their portfolios.

One popular strategy is investing in gold, a common hedge against volatility and, as Warren Buffett calls it, “a way of going long on fear.” Gold and silver have a long-standing reputation as safe-haven assets. When the stock market runs into hot water, precious metals often perform well because investors start buying them in droves as hedges.

Although the rate increase was largely anticipated, no one knows exactly what effect it will have on the markets. The stock market’s reaction to the Fed’s press conference seemed positive at first, but it soon shook off gains and plunged lower until close.

This uncertainty, combined with a desire to hedge against potential risks, is driving many toward the perceived safety of precious metals. The price of precious metals has already started to spike in price since the conference, and gold is nearing breaking $2,000 again. As the debate over the Fed's decision continues, it remains to be seen how the markets will ultimately respond to this latest development in monetary policy.

Investors are turning to gold and silver in droves to protect their portfolios as uncertainty rises in the economy. Check out Benzinga’s Advantage Gold Hub, its preferred source for purchasing physical gold and in IRAs, to master the sector and discover the best precious metals trading platforms.

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