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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.
Roger Carstens, the Biden administration’s top official for freeing Americans held overseas, on Friday arrived in Damascus, Syria, for a high-risk mission: making the first known face-to-face contact with the caretaker government and asking for help finding missing American journalist Austin Tice.
Tice was kidnapped in Syria 12 years ago during the civil war and brutal reign of now-deposed Syrian dictator Bashar al-Assad. For years, U.S. officials have said they do not know with certainty whether Tice is still alive, where he is being held or by whom.
The State Department’s top diplomat for the Middle East, Barbara Leaf, assistant secretary of state for Near Eastern Affairs, accompanied Carstens to Damascus as a gesture of broader outreach to Hay’at Tahrir al-Sham, known as HTS, the rebel group that recently overthrew Assad’s regime and is emerging as a leading power.
Near East Senior Adviser Daniel Rubinstein was also with the delegation. They are the first American diplomats to visit Damascus in over a decade, according to a State Department spokesperson.
They plan to meet with HTS representatives to discuss transition principles endorsed by the U.S. and regional partners in Aqaba, Jordan, the spokesperson said. Secretary of State Antony Blinken traveled to Aqaba last week to meet with Middle East leaders and discuss the situation in Syria.
While finding and freeing Tice and other American citizens who disappeared under the Assad regime is the ultimate goal, U.S. officials are downplaying expectations of a breakthrough on this trip. Multiple sources told CBS News that Carstens and Leaf’s intent is to convey U.S. interests to senior HTS leaders, and learn anything they can about Tice.
Rubinstein will lead the U.S. diplomacy in Syria, engaging directly with the Syrian people and key parties in Syria, the State Department spokesperson added.
Diplomatic outreach to HTS comes in a volatile, war-torn region at an uncertain moment. Two sources even compared the potential danger to the expeditionary diplomacy practiced by the late U.S. Ambassador Christopher Stevens, who led outreach to rebels in Benghazi, Libya, in 2012 and was killed in a terrorist attack on a U.S. diplomatic compound and intelligence post.
U.S. special operations forces known as JSOC provided security for the delegation as they traveled by vehicle across the Jordanian border and on the road to Damascus. The convoy was given assurances by HTS that it would be granted safe passage while in Syria, but there remains a threat of attacks by other terrorist groups, including ISIS.
CBS News withheld publication of this story for security concerns at the State Department’s request.
Sending high-level American diplomats to Damascus represents a significant step in reopening U.S.-Syria relations following the fall of the Assad regime less than two weeks ago. Operations at the U.S. embassy in Damascus have been suspended since 2012, shortly after the Assad regime brutally repressed an uprising that became a 14-year civil war and spawned 13 million Syrians to flee the country in one of the largest humanitarian disasters in the world.
The U.S. formally designated HTS, which had ties to al Qaeda, as a foreign terrorist organization in 2018. Its leader, Mohammed al Jolani, was designated as a terrorist by the US in 2013 and prior to that served time in a US prison in Iraq.
Since toppling Assad, HTS has publicly signaled interest in a new more moderate trajectory. Al Jolani even shed his nom de guerre and now uses his legal name, Ahmed al-Sharaa.
U.S. sanctions on HTS linked to those terrorist designations complicate outreach somewhat, but they haven’t prevented American officials from making direct contact with HTS at the direction of President Biden. Blinken recently confirmed that U.S. officials were in touch with HTS representatives prior to Carstens and Leaf’s visit.
“We’ve heard positive statements coming from Mr. Jolani, the leader of HTS,” Blinken told Bloomberg News on Thursday. “But what everyone is focused on is what’s actually happening on the ground, what are they doing? Are they working to build a transition in Syria that brings everyone in?”
In that same interview, Blinken also seemed to dangle the possibility that the U.S. could help lift sanctions on HTS and its leader imposed by the United Nations, if HTS builds what he called an inclusive nonsectarian government and eventually holds elections. The Biden administration is not expected to lift the U.S. terrorist designation before the end of the president’s term on January 20th.
Pentagon spokesperson Pat Ryder disclosed Thursday that the U.S. currently has approximately 2,000 US troops inside of Syria as part of the mission to defeat ISIS, a far higher number than the 900 troops the Biden administration had previously acknowledged. There are at least five U.S. military bases in the north and south of the country.
The Biden administration is concerned that thousands of ISIS prisoners held at a camp known as al-Hol could be freed. It is currently guarded by the Syrian Democratic forces, Kurdish allies of the U.S. who are wary of the newly-powerful HTS. The situation on the ground is rapidly changing since Russia and Iran withdrew military support from the Assad regime, which has reset the balance of power. Turkey, which has been a sometimes problematic U.S. ally, has been a conduit to HTS and is emerging as a power broker.
A high-risk mission like this is unusual for the typically risk averse Biden administration, which has exercised consistently restrained diplomacy. Blinken approved Carstens and Leaf’s trip and relevant congressional leaders were briefed on it days ago.
“I think it’s important to have direct communication, it’s important to speak as clearly as possible, to listen, to make sure that we understand as best we can where they’re going and where they want to go,” Blinken said Thursday.
At a news conference in Moscow Thursday, Russian President Vladimir Putin said he had not yet met with Assad, who fled to Russia when his regime fell earlier this month. Putin added that he would ask Assad about Austin Tice when they do meet.
Tice, a Marine Corps veteran, worked for multiple news organizations including CBS News.
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