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

Jim Rickards: Junk Bonds Could Set off the Next Crisis

Last month, we reported on troubling signs in the corporate bond market. According to Moody’s, the majority of US companies have a “speculative” credit rating. They are considered high risk. As a result, their debt is “high yield” or “junk. When you combine leveraged loans and junk bonds, the total level of “junk” debt in the […]

READ MORE →

Three Reasons Gold Will Rise from Its Slumber

The price of gold has languished in recent weeks. After falling below $1,300 in May, the yellow metal has hit 2018 lows this month. Dollar strength along with the anticipation of further Federal Reserve rate hikes have bolstered the dollar and weighed on gold. Peter Schiff has been saying this dollar strength is merely an upward […]

READ MORE →

Which Countries Produce the Most Gold?

Global mine production fell slightly in 2017, the first drop in mine output since 2008. In fact, gold production has generally increased every year since the 1970s. The drop in 2008 was something of an anomaly, as it occurred at the onset of the 2008 financial crisis. The recent slowdown in mine production is more […]

READ MORE →

IRS Building Walls to Keep Americans In

There has been a tremendous amount of debate about building walls to stop illegal immigration. But the IRS is building walls to keep Americans in. The US government is cracking down on Americans with outstanding tax bills by revoking passports. 

READ MORE →

Gold in Tech: Gold Nanoparticles Could Boost Solar Energy Storage

Rutgers University-New Brunswick researchers have developed a star-shaped gold nanoparticle that could open the door to improving storage of solar energy. According to scientists at the university, the nanoparticle coated with a semiconductor can produce hydrogen from water over four times more efficiently than other methods. The development could boost solar energy use and possibly […]

READ MORE →

Comments are closed.

Call Now