Loading ...Yeah, Whatever
I saw this in an article yesterday…
So we all need to be really worried, because QT (rising rates) means that gold is dead in the water. I’m calling bullshit on that. Forgive my hand drawn overlay, but I did it very carefully, and stretching back to 1975 there are plenty of occasions when rising rates have coincided with rising gold price. Their chart only goes back to 2007. What it doesn’t show is that from 2004 to 2007 rates rose from 1% to over 5% and gold advanced from $400 to $700. The same thing happened in the late 1970’s and mid/late 1980’s. The same thing is happening now.
Rising rates aren’t always good for gold, but they often are. We don’t need to think that QT will be bad for gold. Between 2000 and 2011 gold rose from $300 to $1900. During that period we had rapidly rising rates, rapidly falling rates and prolonged low rates. I hate it when writers make the facts fit their agenda. You always need to look back through 2 or 3 full financial cycles before you can even begin to draw conclusions.
Good post NorthStar.
Read this one on QT from the TSI blog:
http://tsi-blog.com/2018/01/monetary-policy-madness/
My takeaway is this: Why is the fed tightening? Because they will need to loosen again in the future. They have a horrible track record of doing the right thing or seeing a crisis before it happens.
NS I would tend to agree with the sketchy correlation between interest rates and Gold simply based on the lack of historical data. 2 cycles is not enough IMO. Further the two cycles tops in Gold were polar opposites IMO 1981 the FED was trying to stop hyperinflation and in 2011 IMO the FED was trying to promote economic growth regardless of inflation very distinct agendas.
One interesting thing from your sketch is what happened to the price of Gold after the FED stopped raising rates in certain instances?
Yep – let’s see what happens this time 🙂
Lots of mythology in the media about ‘what moves the gold price’. The whole financial news sector seems to be more misinformation than information.
Indeed.
Rates starting rising right at the end of 2015 and that marked the bottom for gold. If you plot the Fed Funds rate against gold you will see that many bottoms in gold coincided with the beginning of a rate hike cycle.
Rising rates increases inflation expectations. Eventually people pull money out of stocks and put it elsewhere when rates become excessive. This isn’t the 70s anymore, so excessive is probably anything over 4%.
Yep, there seems to be some evidence that as rates rise, gold price tends to (as you say – inflation expectations). As the rate hiking cycle progresses, gold price can diverge (chatter about the rate hike cycle ending ?).