Could repeated interest rate hikes be a reason to BUY?

BigE

Certain "investment advisors" warn of rate hikes by the Chinese, Indians, Thais, Europe etc., ad nauseum, and how this will cause a collapse of precious metal prices by restricting investment dollars.

With all the international rate hikes that have occurred recently and the peaking of gold and silver at the same time, maybe rate hikes are a sign of uncontrollable inflation on the horizon and even higher prices.

Why worry about the effects of .25 % rate hikes when they have done no good? Is it time to buy PM's when rate hikes dont work?-------BigE

gecko109

Im of the opinion that raising the rates now will actually cause inflation......thats a very contrarian thought process, but let me explain why.


Currently, the U.S. is on the hook for about $400 billion in interest only payments to our current debt. That represents 15% of the entire yearly revenue that the government collects. This is with near zero interest rates mind you! So if the rates were raised, it would cause newly issued debt to be paid back at even higher rates, thus raising that 15% to perhaps 20% or maybe even 25%. This will cause the need for even more borrowing to meet budgets. And each time a treasury gets redeemed, its paid out in CASH printed by the FED. Thats ALOT of new money that could be entering the system in a short time frame....which is the root cause of inflation.


I'd like someone to explain the flaw in my logic here. Im very open to learning new things!

derryb

Investment dollars will always be out there looking for the best return, regardless of what the interest rate is. Rising interest rates would reduce borrowed investment dollars, but more importantly they would provide better returns on investments tied to interest rates such as bonds. This may draw away some PM investment dollars.

cladking

I don't think they can raise interest rates without choking off the recovery. However, there
will be absolutely no choice but to raise them anyway or assets will flow to countries with higher
interest rates and sounder currencies as well as to gold and inflation protection. In other words
as inflation ticks higher they'll raise rates but won't keep up. When inflation hits 10% next year
or this summer rates will go up to 5%. This process will continue and bleed the savers.

Inflation increases demand on gold and when inflation nears its peak gold will fall sharply. Most
are going to miss by selling too early I believe. Inflation is going to have to be significant to take
care of government spending and waste. Higher interest rates hurt gold but never as much as
inflation pushes it higher and this will go double when real interest rates will be running at -3%
and then the government taxes you on your supposed "profit".

Silver is dependent on economic conditions for now. If a buying panic develops it will be on its
own and able to stand with gold to a large extent. It will never be as stable as gold though.