Rising interest rates & the price of gold
edmundfitzgerald
Posts: 4,306 ✭✭
What's your opinion on how high the interest rates have to go before we see a significant pullback in gold ?
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"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Interest rates can go to the moon as long as the net real rate remains near 0% or negative. It tookyears of increasing rates in the 1970's culminating near 20% to finally kill gold in the early 1980's. Today, rates have been artificially depressed by hundreds of $TRILLIONs in Interest Rate swaps. It's hard to say what a non-manipulated rate would actually be. Short term increases in rates can push the gold price either way. But as in the 1970's, generally rising rates will lead to gold price increases. The end is in play when real rates turn strongly positive. And to get there, a strong currency or equivalent is needed.
Rates end to rise because of inflationary expectations in portions of the economy. If there are none, then rates will tend to stay low.
roadrunner
<< <i>What do you define as a pullback? 33% like in 2008 or 7% like we just had this past month?
Interest rates can go to the moon as long as the net real rate remains near 0% or negative. It tookyears of increasing rates in the 1970's culminating near 20% to finally kill gold in the early 1980's. Today, rates have been artificially depressed by hundreds of $TRILLIONs in Interest Rate swaps. It's hard to say what a non-manipulated rate would actually be. Short term increases in rates can push the gold price either way. But as in the 1970's, generally rising rates will lead to gold price increases. The end is in play when real rates turn strongly positive. And to get there, a strong currency or equivalent is needed.
roadrunner >>
Very interesting perspective rr. I never thought of it like that. So if you feel strongly about this, then is there anything under
the current economic conditions that could drive down the price of gold, other then the crooks on wall street playing with the market ?
<< <i>gold will rise with inflationary expectations. high interest rates could be used to crush inflation, and therefore the price of gold. >>
Interest rates will rise with inflationary expectations. Gold has typically done well during interest rate increases because the FED raised rates to combat inflation. Had there been no inflation, interest rates would be steady as would the price of gold.
Gold rose from 2001 to 2007/8 because of inflationary pressures. All around the globe factories were running at maximum capacity. Now, those same factories are missing a few cyclinders. Its gonna be awhile before the global growth engine gets a tune-up and inflation comes racing back.
Knowledge is the enemy of fear
<< <i>
<< <i>What do you define as a pullback? 33% like in 2008 or 7% like we just had this past month?
Interest rates can go to the moon as long as the net real rate remains near 0% or negative. It tookyears of increasing rates in the 1970's culminating near 20% to finally kill gold in the early 1980's. Today, rates have been artificially depressed by hundreds of $TRILLIONs in Interest Rate swaps. It's hard to say what a non-manipulated rate would actually be. Short term increases in rates can push the gold price either way. But as in the 1970's, generally rising rates will lead to gold price increases. The end is in play when real rates turn strongly positive. And to get there, a strong currency or equivalent is needed.
roadrunner >>
Very interesting perspective rr. I never thought of it like that. So if you feel strongly about this, then is there anything under
the current economic conditions that could drive down the price of gold, other then the crooks on wall street playing with the market ? >>
my take is that the inflation numbers can be manipulated by the gov't to further an end.
I know it is a tin foil hat conspiracy theory. I brushed it off when it was first suggested yearsa ago. However, I believe it after this past commodity spike with a smaller increase in CPI. I was seeing much higher food and energy prices.
Anyway...
what would it take to drive down the price of gold?
a true global economic recovery.
As part of the tin foil hat... I'll add that it has to be felt by the average guy and not just appear in the numbers. Although some might say that could be required tin foil hat or not.
To me, gold is a "cling to" safe haven that took a bit longer than I'd have liked to draw wider appeal (e.g. Europe is only now buying gold heavily?)
Once a strong recovery starts, people will look to better &/or faster returns in things like stocks and we'll hear the old stories about the long-term return of gold again.
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......