Ever since the Federal Reserve raised interest rates by a quarter point last December, analysts have been forecasting between two and four more rates hikes in 2016 as the assumption that the economy is now 'doing well' has skewed expectations despite the real data denoting the world is in a global recession.
On May 6, these analyst assumptions took a massive hit as job numbers for April came in more than 40,000 less than expectations and the chance of a rate hike taking place in June, or the rest of the year, suddenly plunged to near zero.
What this means in the long run for both gold and the dollar is that it may be more likely that the central bank must change course and now put in a rate drop, as well as more quantitative easing back on the table, which will cause the dollar to weaken and gold to continue its rise as people and investors look for safe havens from Fed impotence.
As the global uncertainties have gripped the major economies of the world, most assets have lost their attractiveness to investors. Only gold’s allure remains, and we’ve seen a rally in precious-metal-based funds and other related investments.
The Federal Reserve remained shy about a rate hike owing to the downward sticky inflation numbers that fail to give muscle power to the central government. While the inflation numbers run below the target 2%, the personal consumption expenditures index rose 1.3% in January year-over-year. The core inflation increased 1.7%, but the prospects for the same measure remain unchanged. The GDP (gross domestic product) growth expectations have also dropped since December. - Market Realist