3 Reasons The Fed Will Raise Rates

A: Rising energy prices, rising precious metal prices, and continuing geo-political concerns in the Middle East are all valid reasons for the fed to continue with its rate increasing campaign. Anything less than 2 more 1/4 point interest rate hikes should be viewed as a surprise at this point!

1. Rising Energy Prices: The price of Light Sweet Crude surpassed the $68/Barrel mark today dragging the prices of gold and silver up with it. According to Yahoo Finance:

According to Leonard Kaplan, president of Prospector Asset Management, there hasn't been a close correlation between energy prices and gold prices for a long time, but the rationale is that rising energy prices will cause inflation, and inflation boosts precious metals.

"It's money chasing money," he said, adding that commodities across the board, from copper to zinc to sugar, have seen big increases without any fundamental reason. "Money is pouring into them simultaneously, without cause or concern or interest in what the values are, or what it's going to be used for. It's all momentum -- it's the flavor of the year."

2. Rising Precious Metal Prices: Gold Futures have now topped $600 an Ounce which will could only lead to a more volatile trading atmosphere for the weeks to come. Expect sharp movements and heavy volume! According to Bloomberg.com:

Gold for June delivery rose as much as $9.40, or 1.6 percent, to $601.90 an ounce on the Comex division of the New York Mercantile Exchange, surpassing $600 for the first time since Jan. 6, 1981. Funds have been the biggest buyers of gold this year, outpacing purchases by jewelers, who accounted for 73 percent of demand last year, the London-based World Gold Council said in a March 29 newsletter. Investors typically buy gold as inflation increases, to preserve purchasing power. The precious metal surged to $873 an ounce in 1980 in New York, when consumer prices jumped more than 12 percent.

Right there is the meat of what you need to know about Gold in times like these. It's considered a safe haven with so much uncertainty floating around. If its going up now, just wait for when a rate cutting cycle gets started.

3. Continuing Geo-Political Concerns in Middle East: Both the fed and tradable markets HATE UNCERTAINTY! Geo-Political dramas unravelling in Iran, Iraq, Nigeria, & North Korea are only adding to the uncertainty of what is actually going on in these countries. Expect the energy markets to rally as a result of uncertainty in these countries, which will lead to higher precious metal prices, which will lead to higher inflation concerns, which will lead to the fed raising rates more to deal with it. Read that again if you didn't understand the chain of events that ends with the fed's next move.

NOTE: I just heard on CNBC that the Oil Minister of Nigeria expects 500,000 barrels of oil a day to be back online by the end of the month. However, Nigerian rebels are also threatening the lives of any Nigerian oil worker that returns to work when systems are back online. Should the 500,000 barrels a day expectation come true, that should ease supply concerns a bit and help stabalize the price of crude.

Bottom Line: We need to hit the source. The political uncertainty in the Middle East must change drastically over the next few years or else energy prices will continue to remain at historically high levels.

Now I know I'm just an observer and that I should probably bring up points on how to resolve these issues rather than complaining about it, but honestly I have no clue! Do you? How do we ease tensions with North Korea? How do we fix the recently criticized public opinion on the war in Iraq? How do we stop the militant attacks on oil pipelines and systems in Nigeria? How do we do all this when we have no money?

Did you know that our Current Debt Down To The Penny Right Now is $8,388,876,683,304.95! Did you know that we currently spent $271B on the Iraq War to date based on this running scale!

UrbanDigs Says: Its no surprise that institutional investors and hedge funds are looking to the security of Gold, Silver, Copper, etc. these days. And one thing you can count on is that the fed is watching all of this. Until we see Bernanke change something up, we must stick with the thinking that at least 2 more hikes are ahead of us. Plan accordingly and AS I SAID IN PREVIOUS POSTS, LOCK IN YOUR MORTGAGE RATE sooner rather than later if you know you are close to signing a contract!

~ Gold Futures Top $600 an Ounce

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