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Why you should invest in gold with interest rates paused
KATERYNA KON/SCIENCE PHOTO LIBRA
Interest rates have been on a wild ride over the last couple of years as the Federal Reserve has worked to battle stubbornly high inflation. After keeping rates near zero during the pandemic to help stimulate the economy, the Fed started aggressively hiking its benchmark federal funds rate in March 2022 to try and get rising consumer prices under control.
The federal funds rate now sits in a range of 5.25% to 5.50%, the highest level in 23 years. And, while the Fed rate hikes have helped cool inflation compared to its peak of 9.1% in June 2022, inflation has started to tick back up recently. After hitting an annual rate of 3.2% in February, consumer prices rose 3.5% in March compared to a year earlier.
So, with inflation still running too hot, the Fed announced at its May 1 meeting that it would keep its benchmark rate paused for now. That’s bad news for borrowers, who aren’t likely to see lower loan rates in the foreseeable future. But while you may want to rethink your borrowing strategy in light of today’s news, there is one smart move to consider making while interest rates are paused: investing in gold. Below, we’ll detail why.
Find out how gold investing could come with big benefits for your investment strategy.
Why you should invest in gold with interest rates paused
With the high interest rate environment likely to persist for now, investors would be wise to consider adding gold to their portfolios for several key reasons, including:
Gold tends to thrive while interest rates are high
You might think that higher interest rates would be bad for gold since it doesn’t pay any interest or dividends like bonds or stocks. However, the opposite is often true. Gold has historically done well when rates are high.
The key reason is that the Fed keeps interest rates high when it’s worried that inflation is getting out of control and wants to slow down the economy. And, while rapidly rising prices erodes the purchasing power of paper money, gold tends to hold its value over the long run.
So, when the Fed is hiking rates to fight inflation, many investors start looking at gold as a safe haven to protect their wealth. They want an asset that will maintain its buying power instead of cash that is losing value daily due to high inflation.
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Gold provides diversification for portfolios
When the economy is going through a rough patch, like during periods of high inflation and elevated interest rates, it’s smart to have some of your investments in assets that are uncorrelated to the broader markets and can help stabilize your portfolio. And, gold can act as a safety net or portfolio insurance since it tends to hold its value or even rise when other investments are suffering.
That’s because stocks and real estate can drop in value quickly during periods of market turmoil, but gold has been valued for centuries as a crisis commodity that maintains its purchasing power through tough times. And, since gold doesn’t rely on any company or government promises, there’s no default or counterparty risk.
Physical gold supply constraints limit risk
A key advantage gold has over paper assets like stocks is that its supply is limited by physical constraints. While companies can just print more stock shares, mining production of new gold is limited due to fewer big discoveries and the difficulty of extracting it from the ground. The limited supply acts as a floor under gold prices since extracting each ounce of gold requires paying real mining and transportation costs.
And, running out of minable gold puts a cap on how low prices can go. So during periods when gold demand is high, like it is in today’s elevated rate environment, the scarcity of gold helps buoy gold prices and drive them higher, allowing investors to capitalize on the price gains.
Demand remains robust amid the current landscape
Gold prices have been climbing in recent months, but demand for gold has remained very strong even with prices elevated. For starters, major central banks around the world have been buying gold as they look to diversify away from the U.S. dollar given inflation concerns. And, average investors have also been piling into gold with inflation soaring. With limited supply and steady demand drivers, that combination is likely to continue supporting gold prices, especially as high rates remain paused.
The bottom line
While higher interest rates create headwinds for many asset classes, gold stands out as an attractive investment in the current environment. Its ability to hedge inflation, perform well when rates are elevated and provide safe-haven diversification makes it an appealing portfolio addition. And, with inflation proving difficult to tame and rate cuts seemingly pushed out, now could be an opportune time for investors to gain exposure to gold.
President Biden has given the OK to lift restrictions that will allow Ukraine to use U.S.-provided long-range weapons to strike deep into Russian territory, a U.S. official confirmed to CBS News on Sunday. The move is a significant change to U.S. policy in the ongoing Ukraine-Russia conflict.
The easing of restrictions would allow Kyiv to use the Army Tactical Missile System, or ATACMS, to hit targets inside Russia. The move also comes as some 10,000 North Korean troops were sent to Kursk near Ukraine’s northern border to help Russian forces retake territory.
The White House National Security Council declined to comment to CBS News.
The U.S. decision could help Ukraine at a moment when Russian forces appear to be making gains and could put Kyiv in a better negotiating position when and if peace talks happen.
It also comes as Mr. Biden is about to leave office and President-elect Trump has pledged to limit American support for Ukraine and ending the war as soon as possible.
In an interview with Ukrainian media outlet Suspilne on Friday, President Volodymyr Zelenskyy said Kyiv would like to end the war with Russia next year through “diplomatic means.”
He said he is certain that the war will end “sooner” than it otherwise would have once Mr. Trump becomes president.
“It is certain that the war will end sooner with the policies of the team that will now lead the White House. This is their approach, their promise to their citizens,” Zelenskyy said.
February 2025 would mark the third year of Moscow’s invasion of Ukraine with Russia’s troops gaining ground in recent months.
For several months, Zelenskyy and many of his Western supporters have been requesting to use U.S. weapons to hit Russian military targets far from its border, saying the U.S. ban had made it impossible for Ukraine to try to stop Russian attacks on its cities and electrical grids.
Some congressional Republicans have urged Mr. Biden to loosen the rules on how Ukraine can use U.S.-provided weapons.
contributed to this report.
CBS News
Ohio governor, other leaders condemn neo-Nazi march in Columbus: “Your hate isn’t welcome in our city”
Leaders in Ohio condemned a group of neo-Nazis parading around part of Columbus carrying flags with swastikas on Saturday afternoon.
Columbus public safety dispatchers told CBS affiliate WBNS on Saturday that they received multiple 911 calls around 1:30 p.m. about a group of individuals marching in the city’s Short North.
Video sent to the station showed nearly a dozen people wearing black pants, shirts and head coverings and red masks covering their mouths marching down the street. Three of the people were carrying black flags with red swastikas.
It was not immediately clear who was in the group.
Hours after the incident, Mayor Andrew Ginther released a statement saying the city rejects the “cowardly display” and that it “stands squarely against hatred and bigotry.”
“We will not allow any of our neighbors to be intimidated, threatened or harmed because of who they are, how they worship and whom they love,” Ginther said in his statement shared on X.
The city’s attorney, Zach Klein, said in a statement on X that those involved in the neo-Nazi march should “take your flags and the masks you hide behind and go home and never come back. Your hate isn’t welcome in our city.”
“This is not who we are, and we will not tolerate or normalize this disgusting ideology in any form,” he added.
Gov. Mike DeWine said in his own statement that the people involved in the incident were “spewing vile and racist speech against people of color and Jews.”
“There is no place in this State for hate, bigotry, antisemitism or violence, and we must denounce it wherever we see it,” he said.
Columbus Division of Police Sgt. Joseph Albert told WNBS that there were no arrests made, although he noted that many of the individuals were detained but later released.
Columbus, Ohio’s largest city, is located roughly 45 minutes from Springfield, where the Columbus Dispatch reported that neo-Nazis marched through the streets this summer as the city became the focal point of false claims about Haitian immigrants in the presidential election.
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