Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Gold and Rising Interest Rates: Selling the Rumor, Buying the Fact

  by    0   0

The Federal Reserve is widely expected to nudge interest rates up again this week. Most analysts agree that the specter of a rate hike is one of the primary reasons gold has slumped over the last several weeks. But are rising interests rates really bad for gold?

The short answer is no. At least not historically

Conventional wisdom holds that tighter monetary policy tends to increase bond yields and boost earnings. That makes and bonds more appealing to investors, theoretically lowering the appeal of gold and silver. So, when the Fed starts talking rake hikes, the air generally comes out of the precious metals markets.

But consider this: the Fed started raising interest rates two years ago. With the rate a full 100 basis points higher than it was in December 2015, gold is trading at nearly $200 per ounce higher than it was then. That’s more than a 15% increase.

As a recent Bloomberg article pointed out, when it comes to rate hikes and gold, the reality tends to be sell the rumor, buy the fact.

Chart gold against US 10-year Treasury yields and it looks distinctly like the metal tends to sell the rumor of rate rises, and buy the fact. Every time yields have peaked north of 2.5% over the past five years, gold has promptly rallied. Economists predict that yield barrier should be broken sometime in the first quarter of 2018.”

Last summer, Peter Schiff explained why the current rising rate environment is good for gold despite the conventional wisdom.

Central banks use two primary rationales to justify rate hikes – strong economic growth and a healthy inflation rate. As Peter explained, inflation is key when it comes to gold.

Rising interest rates are not negative for gold. I mean, the main reason that interest rates are rising around the world is because inflation is picking up around the world. Higher inflation is positive for gold. I mean, it is the most bullish thing for gold. And in fact, when inflation rates are rising, that means money is buying less, right? The purchasing power of money is going down. And that’s when you want to own gold.”

And while higher rates do boost bond yields, inflation is not a friend of the bond market. Bonds lose value as inflation increases. That is bullish for gold because gold is something you would own as an alternative to bonds.

A bear market in bonds is bullish for gold. But for some reason everybody just thinks, well, if interest rates are going up, that just makes gold less attractive because you’re giving up the opportunity cost. It makes bonds less attractive, because bonds are falling in value. It makes currency less attractive because interest rates are rising because currency is losing value. But gold won’t be losing value. Gold is going to be storing value.”

Right now, most investors are ignoring the yellow metal, but this might actually be an opportune time to buy gold. As we said last week, with the price relatively low right now, gold may well be giving you an early Christmas present.

WhyBuyGoldNowBanner.070815.590

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Peter Schiff: The Bond Yield that Could Break the Camel’s Back

Ten-year bond yields have hit their highest level since July 2014. Meanwhile, the stock market has gone up about 45%  since that time. Contrast that with earnings that have increased just 6%. As Peter Schiff pointed out in his most recent podcast, a lot of the justification for that increase in stock market valuation has been […]

READ MORE →

Housing Bubble 2.0

We’ve written extensively about the stock market bubble blown up by artificially low interest rates and Federal Reserve quantitative easing. But stocks aren’t the only asset bubble out there. In fact, 2017 may go down as the year of the bubbles. And the new housing bubble is one that seems to be floating under the […]

READ MORE →

Fundamentals Look Good for Silver in 2018

All kinds of factors impact the price of precious metals, but supply and demand are the most fundamental. With that in mind, the stage seems to be set for silver to have a strong year in 2018. According to the Silver Institute 2018 Market Trends report, the silver market faces growing demand and shrinking supply […]

READ MORE →

Global Debt Growing Three Times Faster than Global Wealth

Global wealth increased to a new record of $280 trillion in 2017, according to Credit Suisse Global Wealth Report 2017. That seems like pretty good news until you consider global debt is increasing nearly three times as fast. Related

READ MORE →

Crypto Crash Sparks Rush into Gold

The crypto crash earlier this week sparked a run to gold. Regulatory concerns set off the panic. Bitcoin fell below $10,000 for a time, and other cryptocurrencies saw precipitous drops. Crypto markets appeared to have stabilized Thursday morning, with Bitcoin back up over $11,000. The sudden plunge served as a reminder of the extreme volatility […]

READ MORE →

Comments are closed.

Free Newsletter & Notification of Special Deals
RSS Feed
LINKEDIN
YouTube Channel
YouTube Channel
Google+
Google+
https://schiffgold.com/key-gold-news/gold-rising-interest-rates-sell-rumor-buy-fact
Call Now