Gold doesn’t need inflation to soar, just so long as gold delivers a “real” positive return – a positive gain after inflation, especially in comparison to prevailing short-term interest rates. With the Federal Reserve now promising to keep interest rates at or near zero through 2023, investors can accumulate gold with confidence that it will deliver real returns for at least the next three years, and likely much longer, due to the huge infusion of new fiat currency and federal deficit spending this year and for many years to come.
Gold and silver have soared this year, due in large part to the Fed’s expansive monetary policy. Gold has already reached an all-time high in August, and silver staged a strong rally in the same month. That’s when Federal Reserve Chairman Jerome Powell formalized Fed policy by saying it would drop its long-standing plan for pre-empting any rising inflation by raising interest rates. This time around, they said they would let inflation rates rise above their target rate of 2% without raising interest rates to stem rising inflation.
Mutual fund manager Frank Holmes has long stated that “negative real interest rates” (i.e. inflation rates higher than interest rates) are a primary engine of gold bull markets in history, and we have had negative real interest rates in Europe, Japan and the U.S. for several years now, fueling gold’s bull market since 2015. Fed policies which guarantee a continuation of negative “real” rates have accelerated the gains in gold and silver this year. The dollar’s 10% decline from March through August magnified gold’s gains.