Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold Does Not Fear Interest Rate Hikes

Commodities / Gold and Silver 2018 Mar 07, 2018 - 01:32 PM GMT

By: GoldCore

Commodities

– Gold no longer fears or pays attention to Fed announcements regarding interest rates
– Renewed interest in gold due to inflation fears and concern Fed won’t do enough to control it
– Higher interest rates on horizon will make debt levels unsustainable
– New Fed Chair warns “the US is not on a sustainable fiscal path” and could lead to an “unsustainable” debt load
– Higher interest rates are good for gold as seen in the 1970s and 2000s
– Gold markets aware that central banks are running out of financial weapons to deal with crises


You wouldn’t believe it by looking in the financial news but the price of gold has had a stellar run over the last few years. Since the beginning of the year it is up nearly 10%, contributing to the near 30% rise since early 2016. Most recently it has been thanks to a weaker dollar, but longer-term it is due to the disbelief gold has in central banks.

Many commentators and market observers did not expect gold to rise as it has: the same period included interest rate rises from the Federal Reserve, something once considered to be the gold market’s kryptonite.

But instead of driving the gold price down, US interest rate hikes have had little impact. One of the key factors supporting the gold price is the very same factor that has central bankers spooked – inflation.

Gold investors have realised that whilst interest rate hikes are likely to continue, the factors they are trying to combat (namely inflation) are now so far beyond central bankers’ control that gold remains an attractive safe haven and asset class.

Interest rate hikes are inevitable but gold sees past them

Inflation in the US is on the move — the PPI measured 2.2% in February. That might not seem like much but don’t forget that the markets are not prepared for higher inflation. Consider reactions back in January when it dawned on market participants that inflation could not stay this low forever.

Higher inflation will inevitably mean even more interest rate hikes. Surely this is a good thing? Perhaps, but is it too little too late?

Sadly central bankers seem to one step behind, rather than one step ahead when it comes to monetary policy. As we have seen since the financial crisis struck, central banks are reactors rather than actors when it comes to preventing seismic events.

Those investing in gold recognise that central banks can increase rates as much as they like. But a rapid reaction such as this can lead to dangerous problems for the debt-laden side of the market.

Interest rate increased will see unsustainable levels of debt

“Everything is just very burdened with debt, and there’s no stopping it.” Ron Paul told CNBC this week. He’s not wrong. At the moment there are zero plans in place to reduce the debt burden across the financial world.

What makes the debt so unsustainable? Interest rate hikes.

“We’re gonna see higher interest rates and when that happens then that debt becomes very much unsustainable” Stephen Flood, The Goldnomics Podcast

“the scene is set for higher interest rates, debt burden is going to become difficult to manage and we think that there’s going to be market events that these Treasury officials are going to have to answer for.”Stephen Flood, The Goldnomics Podcast

If central bankers react by increasing rates then it could make interest payments the US government’s largest single expenditure — bigger than Social Security ($916 billion in 2016), defense ($605 billion) or Medicare ($594 billion).

One could argue that the world did not end the last time the yield on the 10-year U.S. Treasury note was at levels we have seen recently. That was back in 1996. But think back to that year. The US national debt was under $5 trillion, today it is $20 trillion and counting. If the cost of servicing this debt increases then the impact on financial markets could well be astronomical.

This year it is set to get worse thanks to Trump’s tax plans. They are expected to push the annual budget deficit above $1 trillion and expand the $20 trillion national debt.

Its not just unsustainable levels of government debt that interest rates will trigger. Consider the huge levels of indebtedness we see for individuals across the Western world. For example, US consumer non-mortgage debt has never been higher. At the end of 2017 US households had a record $1.0 trillion of credit card/revolving loans, $1.3 trillion of auto loans, and $1.5 trillion of student loans.

Just a brief look at the US economy alone and one can see why an uptick in inflation and higher interest rates could easily flip us into the next recession. Gold remains an attractive asset as rate setters are running out of tools to control the markets with.

Central bankers have no more tools in the armoury

Back when the last recession took hold central banks could get (somewhat of) a grasp on the situation thanks to monetary policy. They slashed rates and the markets responded accordingly.

Today, interest rates remain very low but another recession is on the horizon. This is something that keeps many Fed bods awake at night.

As Reuters reports:

Federal Reserve policymakers are fretting that they could face the next U.S. recession with an arsenal of policies little different from that used in the last downturn but robbed of much of their punch because interest rates are still low.

“The thing that keeps me up at night is that when that next recession happens, and hopefully not for a long time, I don’t think we have as strong a toolkit as we would like to have to respond to that,” San Francisco Federal Reserve Bank President John Williams said Friday at a Town Hall Los Angeles event.

To pull out of the 2007-2009 recession, the Fed slashed short-term interest rates to near zero and bought $3.5 trillion in bonds to push down longer-term borrowing costs.

Since late 2015 it has gradually reversed course. Its key rate is now in the range of 1.25 to 1.5 percent, and the Fed expects to end this year with rates between 2 percent and 2.25 percent.

With an aging population slowing the economy’s growth potential, the Fed projects it can raise rates only to about 2.75 percent before borrowing costs will really start to brake the economy.

Are higher interest rates bad for gold?

Even with the dire consequences for the financial markets, one could think that there would be an opportunity cost to holding gold  over keeping cash in the bank as interest rates are rising.

Not so, rapidly rising rates against a backdrop of struggling financial markets make gold an even more attractive prospect. As Mark O’Byrne explains:

“…You see the media saying rising interest rates is bearish for gold. But if you look at the history and look at the data, interest rates rose continuously throughout the 1970s from below at the 10-year US Treasury, 10-year bonds below 5% in 1970, to up above 15% in 79-80 and gold prices went up from $35 to $ 850 in those nine years. So, rising interest rates weren’t a negative for gold whatsoever.

“Same thing happened again more recently. Obviously some people might say; “Oh well that’s ancient history and we’re a long way from the 1970s.

“Okay, fair enough well let’s look from 2003 to 2007. I think interest rates went from roughly 3/3½% to 5/5½ %and the gold price went up from $ 400 to $700/800. So, the narrative is incorrect. Rising interest rates are actually bearish as you can imagine for assets that are bought with debt and with leverage.” Mark O’Byrne, The Goldnomics Podcast

As Mark explains on the podcast, raising interest rates are bad news for those assets ‘bought with debt and with leverage’. Within this consider the scenario if both the Federal Reserve and the ECB respond to runaway inflation with accelerated large interest rate increases. This (combined with removal of monetary stimulus) it could very easily turn current ‘all-time-highs’ in the stock market to years of lows in a very short period of time.

You can hear more of Mark’s thoughts on this in our podcast.

Gold looks beyond the short-term

Unlike the financial media, gold looks beyond the short-term moves and commentary. Whilst gold is often dismissed in a higher interest rate environment those investing in it realise that monetary policy changes are not a sign of a healthier economy.

This explains why they have failed to react negatively to past-hikes and declarations by banks that more are on the horizon.

As briefly demonstrated above, one can see that interest rate hikes are unlikely to come at a time with either the US or global economy can handle them. The problem is, the central banks just don’t know what else to do.

Once higher hikes take hold the Federal Reserve will be back to their old game of catch-up and there is little indication that that will bode well for the financial system.

Gold has held its own in this financial crisis and particularly in the face of bearish central bank policies. Combine the likely outcome of these policies with flashpoints in the geopolitical system. This provides you with an even stronger case for gold bullion and bars as a safe haven.

Gold Prices (LBMA AM)

07 Mar: USD 1,332.50, GBP 960.07 & EUR 1,071.86 per ounce
06 Mar: USD 1,324.95, GBP 957.01 & EUR 1,074.00 per ounce
05 Mar: USD 1,326.30, GBP 958.78 & EUR 1,075.63 per ounce
02 Mar: USD 1,316.75, GBP 955.70 & EUR 1,071.04 per ounce
01 Mar: USD 1,311.25, GBP 953.80 & EUR 1,075.75 per ounce
28 Feb: USD 1,320.30, GBP 951.14 & EUR 1,080.53 per ounce
27 Feb: USD 1,332.75, GBP 954.78 & EUR 1,081.26 per ounce

Silver Prices (LBMA)

07 Mar: USD 16.65, GBP 12.01 & EUR 13.42 per ounce
06 Mar: USD 16.62, GBP 11.96 & EUR 13.41 per ounce
05 Mar: USD 16.51, GBP 11.95 & EUR 13.42 per ounce
02 Mar: USD 16.45, GBP 11.92 & EUR 13.36 per ounce
01 Mar: USD 16.32, GBP 11.87 & EUR 13.39 per ounce
28 Feb: USD 16.44, GBP 11.88 & EUR 13.45 per ounce
27 Feb: USD 16.61, GBP 11.91 & EUR 13.48 per ounce

Mark O'Byrne

Executive Director

This update can be found on the GoldCore blog here.

IRL
63
FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
UK +44 (0)203 086 9200
US +1 (302)635 1160

W http://www.goldcore.com/uk/

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information containd in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

GoldCore is committed to complying with the requirements of the Data Protection Act. This means that in the provision of our services, appropriate personal information is processed and kept securely. It also means that we will never sell your details to a third party. The information you provide will remain confidential and may be used for the provision of related services. Such information may be disclosed in confidence to agents or service providers, regulatory bodies and group companies. You have the right to ask for a copy of certain information held by us in our records in return for payment of a small fee. You also have the right to require us to correct any inaccuracies in your information. The details you are being asked to supply may be used to provide you with information about other products and services either from GoldCore or other group companies or to provide services which any member of the group has arranged for you with a third party. If you do not wish to receive such contact, please write to the Marketing Manager GoldCore, 63 Fitzwilliam Square, Dublin 2 marking the envelope 'data protection'

GoldCore Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules