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<p>[QUOTE=&quot;NorthKorea, post: 2238029, member: 29643&quot;]Gibson&#039;s paradox applies primarily to consumed commodities. While non-consumed commodities may see an increase in price, it would be entirely due to inflationary pressure, not due to a direct causal relationship to interest rates.</p><p><br /></p><p>How about this instead:</p><p><br /></p><p>Net of inflation, gold prices will drop when interest rates rise; gold prices will normalize once prices normalize; gold prices will rise with falling rates; gold prices will normalize once prices normalize.</p><p><br /></p><p>As for central banks, interest rates and solvency of sovereign nations...</p><p><br /></p><p>I disagree vehemently.</p><p><br /></p><p>Fixed investments are fixed investments. In rising rate environments, previously issued bonds lose value.</p><p><br /></p><p>Under Obama, the national debt increased $7.6T. For the sake of argument, let&#039;s just say that was all issued in some form of IOU. By the time our next President is sworn in, the total debt under QE policies for the US will be around $8.2T. Now, realistically speaking, $3.2T ($400B deficit spending) of that would have come to fruition without any new policies, so let&#039;s go with $5T in QE bonds.</p><p><br /></p><p>$5T at 3% on the 30-yr and 0% on the 30-day.</p><p><br /></p><p>US Govt raises interest rates to 4.25% by Dec 2016, 5.5% by 2017, 6.25% by 2018, holding that rate through Jan 2020.</p><p><br /></p><p>The $8.2T that we incurred at 3% will be worth about $3.9T at 6.25%. So, the solvency issues are somewhat of a wash.</p><p><br /></p><p>Honestly, what likely happens is interest rates increase, and the US Govt forces Fed Reserve Depositories to buy US paper at lower rates, knowing that their books will take a hit on paper. The trade off will be lowered reserve rates. So, the banking industry privatizes the $4.3T &quot;loss&quot; on their books in exchange for easing restrictions.</p><p><br /></p><p>If we really don&#039;t care about our trading partners overseas, then that $4.3T gets mirrored in the form of bonds issued to other sovereign nations. &quot;Magically&quot; the next President, regardless of who it might be, unless they choose to restart QE and wage inequality through higher minimum wages, will reduce the national debt by $8.6T in their first term, assuring a second term.[/QUOTE]</p><p><br /></p>

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