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If the Fed does cut rates, it encourages borrowing and spending and drives banks to create more new money in the form of loans. This adds to inflationary pressure and encourages investors to safe havens in the form of commodities like gold that can’t be so easily debased.
With a hot CPI report casting a shadow of doubt on the likelihood of a June interest rate cut, all eyes are on the Fed. But they’ve caught themselves in a “damned if they do, damned if they don’t” moment for the economy — and the news for gold is good regardless.
With inflation running at 3.5%, it’s no surprise that gold just hit another all-time high — the dollar’s inevitable decline in purchasing power makes gold’s rise equally inevitable. The Fed wants to lower this number, and they know it won’t happen in a lower interest-rate environment. And while Peter Schiff has warned repeatedly in recent months that inflation is still red-hot, the mainstream finance media is expressing predictable surprise that inflation still isn’t under control.