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<p>[QUOTE="Cloudsweeper99, post: 819108, member: 3011"]I don't buy the idea that Fed tightening weakened the economy in the 70s. If that was true, all of the pain could have been avoided by just not tightening. But the combination of the cost of the Viet Nam war and other government spending plus the inflation from financing the oil crisis and recirculation of petrodollars by printing money [i.e., inflation] made bond holders leary of investing without being compensated by a high interest rate. These days, most of the profit on bonds comes from trading and the carry trade, so the coupon is less important. </p><p><br /></p><p>It doesn't really cost most big players any money to invest in precious metals because the big guys are either (1) trading futures contracts and never taking delivery or delivering bullion, or (2) basis trading against physical positions to earn a risk free rate of return higher than short term treasuries. It is a mistake to believe that large gold owners do not earn money from their holdings that exceeds the carrying costs.</p><p><br /></p><p>But I agree that the rising interest rate is a good sign [if it continues]. When the return on capital is near zero, capital is worth less and/or tends to move to other countries. However, I don't think it necessarily will be negative for gold prices.</p><p><br /></p><p>Edit: I agree that stocks will probably outperform gold over the long run. But gold still has a place in an investment portfolio.[/QUOTE]</p><p><br /></p>
[QUOTE="Cloudsweeper99, post: 819108, member: 3011"]I don't buy the idea that Fed tightening weakened the economy in the 70s. If that was true, all of the pain could have been avoided by just not tightening. But the combination of the cost of the Viet Nam war and other government spending plus the inflation from financing the oil crisis and recirculation of petrodollars by printing money [i.e., inflation] made bond holders leary of investing without being compensated by a high interest rate. These days, most of the profit on bonds comes from trading and the carry trade, so the coupon is less important. It doesn't really cost most big players any money to invest in precious metals because the big guys are either (1) trading futures contracts and never taking delivery or delivering bullion, or (2) basis trading against physical positions to earn a risk free rate of return higher than short term treasuries. It is a mistake to believe that large gold owners do not earn money from their holdings that exceeds the carrying costs. But I agree that the rising interest rate is a good sign [if it continues]. When the return on capital is near zero, capital is worth less and/or tends to move to other countries. However, I don't think it necessarily will be negative for gold prices. Edit: I agree that stocks will probably outperform gold over the long run. But gold still has a place in an investment portfolio.[/QUOTE]
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