Interest Rates and Gold

Gold is certainly on the nose at the moment with many predicting further falls to come. But if the basis for much of those calls is the supposed imminent raising of interest rates by the US Fed then it is worth looking at that a little more factually. The reasoning is that with higher rates your cost of holding the non yielding asset effectively rises and so the market is pricing that in now. It also signals that everything is “OK” now so no need to have a defensive asset. We discussed the ramifications of a rate rise earlier this month but today let’s look more empirically at the relationship between gold and interest rates to debunk this widely held view that rising rates are bearish for gold.

If one goes back to the last big gold bull market of the 70’s the evidence presented in the graph below is pretty clear. Both gold and silver rose (and fell) together with interest rates.



Many still argue we are in the equivalent of the 1976 ‘bear trap’ intra secular bull market phase right now. As you can see above, in 1976 gold almost halved from it’s previous high a couple of years earlier. Upon raising rates gold then commenced its 850% increase to its peak in 1980.

 

Log in or Sign up to hide this ad.

Yikes, cherry picking your dates???? Did you think no one would notice that your chart is only 1970-1984 (14 years) ???? So what happened from 1984 - present????? What happened in the other 85 years or so since the Fed was established.??????

There is also the issue that in you "infopost" just one week ago you stated there is no way that the Fed would be able to raise rates. So what is it????? You should buy Gold because the Fed Won't raise rates and Gold will go up, or you should buy Gold because the Fed will raise rates and Gold will go up.

How about the truth, you believe people should buy Gold so you can make money.

 

Ouch!!

 

In the present very low interest rate environment, there is ZERO connection between a small rise (even 0.5% - unthinkable) and the price of gold. The most important clue is the rapid increase between spot price and retail price over the past six weeks or so, and the fact that the big three bullion dealers now have "Out of Stock" sprinkled through their categories of items for sale. Both these things are FACTS, not theories. I think you have to go with what the marketplace shows you, and the only conclusion you can reach, for the moment, is that supply is drying up; it's costing bullion dealers more to replace their inventory. Even Apmex, who's frequently in bed with eBay, hasn't had a "special" lately.

Again, this refers mainly to 90%, the cheapest way to own silver. There seems to be plenty of gold and silver eagles around, if you'll pay the bumped-up price. There is less demand for gold bullion-coins, because so many fewer people can cough up $1200 or so to buy another piece, whereas many people can find $50 or $100 to buy a little 90% silver. I spent $625 today on a hodge-podge of 90%, rounds, Canadian, and what-not. The rounds and oddball stuff will go straight onto CraigsList, or I'll swap them for dimes, if possible, spot for spot.

One plan I've had NO success with, offering to trade 90% (or silver dollars, or even better, Mint products) for the "best offer" in stamps; very little crossover; I guess the stamp guys are happy with what they've got, but at least stamp prices aren't up and down, and up and down, etc., changing every day. Great fun!

 

my head hurts after reading all of this and I am still just as confused as when I first started reading this.
with todays economics I just do not see how or why it would repeat the same as it did before. why make the same mistake twice. there has to be a new twist, you would think the past would be education enough, right?
something nasty is brewing in the kettle, way to many witches stirring the pot.

 

Gold and Silver always react to interest rates. Don't make it so complicated.

 

well I did end up getting 2x 5 g platinum bars at < $200.00 ea. delivered

 

According to Ron Paul y'all better be ready for the financial downfall that's on it's way, it's gonna be huge, at least that's what RP says. Bess have some gold stored or you're gonna be screwed.

http://ronpaulmessage.com/

 

If Armstrong is right there is a potential supply increase of 43-80 tonnes from Sudan.

http://www.armstrongeconomics.com/archives/35498

 

Just curious, Is the light bulb starting to turn on

 

The bulb is always on. You never noticed because it shines forward.

You know what kind of grip fear and greed has on investors. Under the right conditions lightbulbs, logic, fundamentals even truth are useless. It's only what the aggregate sees and believe that matter.

Right now, the aggregate believes in the USD, the fed, wallstree, ummm the status quo. They are all quite strong aren't they?

Strength becomes weakness,
weakness becomes strength.
Sun Tzu

 

But how do you know when that happens.???? I know I am way to stupid to time the markets, but just smart enough to know that

 

You can't know when it will happen. Stack, hold, wait. Second verse same as the first.

How will you know when it's time to get away from wallstreet?

 

Ron Paul is the definition of Chicken Little and for him the sky is always falling.

And you can bet Ron Paul has most of his wealth in good old American Dollars (the green kind)

 

When it's too late.

 

I don't. That is why I believe in buy and hold. Now you may be thinking that is exactly what you do, which is true, but there is a huge difference. The asset you are attempting to hold, is just not really a stellar performer. In fact all you can truly hope for is to break even after inflation. The asset I am holding has a much better record with proven performance to grow weath considerably.

Both assets will go up and down, sometimes one will out perform the other. But when it's time for counting , the odds are hugely in my favor. I am just holding better cards.

 

We already discussed this Mike. wallstreet is nothing to me but rot. And rot can only be held up for so long. But even if the fed manages to keep the rot twitching, I'm not a buyer in something that I have nothing but contempt for.

 

I'm a firm believer in the fact that all markets are tainted to some extent - and to play them carefully for the long term as a contrarian.

When everyone is too scared to get on the bus - the seats are cheap and plentiful.

When the seat is wanted enough to make a good profit - take it and book the win.

 

Are not mining companies traded on Wall Street???? Aren't Bullion companies riddled with deceit and fraud, are there no mining atrocities that occur to gather you precious Silver. Sorry, but you are not avoiding "the rot" at all. There is no moral high ground by investing in Bullion. If anything, it is worse.

 

I'm not claiming any moral ground. In fact I owned a S.African Kruggerand before President Jim-Bob banned their importation.

"...But even if the fed manages to keep the rot twitching..."

You know what that means. I'm referring to the fed, cronyists and their rotting effect on Capitalism in this country. I suppose that's political then, if you like.

I'd imagine there must be at least a few miners in trouble these days. (?) But I'm not aware of any that have Auntie Janet's gaudy red lipstick on their boo-boos.