Rising Interest Rates and Gold: Perception Doesn’t Match Reality By Michael Maharrey

[Manuel Tavares]

Rising Interest Rates and Gold: Perception Doesn’t Match Reality
By Michael Maharrey
https://rayviolet.blogspot.com/2022/06/rising-interest-rates-and-gold.html

Even with rising interest rates and the dollar at multi-year highs, gold has held its ground. Nevertheless, we have yet to see a big spike in gold prices despite persistent inflation. Why not?

The perception is that rising interest rates are always bad for gold. But does perception match up with reality?

If history is any indication, the answer is no.

Nevertheless, with the Federal Reserve delivering its biggest rate hike since 1994, the mainstream has remained wary. Even before the Fed started raising rates, the anticipation of the central bank aggressively fighting inflation created headwinds for gold. But a careful look at history reveals that we are nowhere near an interest rate environment that should negatively impact gold.

At some point, we should expect a revision as the mean as markets come to grips with reality and recognize that real interest rates aren’t going to rise high enough to undermine gold’s performance.

Holding gold does not generate interest income like a bond or a bank account. If interest rates rise and you’re holding gold, you’re forgoing the interest income you could earn if you instead owned a bond or put dollars in a money market account. That’s why rising interest rates tend to create headwinds for gold. And it’s why we’ve seen gold sell off on high inflation news. The markets expect the Fed ...+
https://rayviolet.blogspot.com/2022/06/rising-interest-rates-and-gold.html