Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com Radio: John Williams and Louis Navellier, and your host Chris Waltzek
By: radio.GoldSeek.com

Technical Scoop - Weekend Update Nov 19
By: David Chapman

Zero Hedge invites Financial Times to heed GATA's urging on gold suppression
By: Chris Powell

The Great Retirement Con
By: Adam Taggart

Perspective on the Gold/Oil Ratio, Macro Fundamentals and a Gold Sector Bottom
By: Gary Tanashian

Global Silver Investment Demand Maybe Down, But Still Double Pre-2008 Market Crash Level
By: Steve St. Angelo

Secular Bull Stock Market?
By: Gary Savage

Gold Seeker Weekly Wrap-Up: Gold and Silver Gain Over 1% and 2% on the Week
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 11 17 2017
By: Ira Epstein

Next-Generation Crazy: The Fed Plans For The Coming Recession
By: John Rubino

 
Search

GoldSeek Web

 
Interest Rates, Fed Policy, and the Price of Gold


 -- Published: Sunday, 13 September 2015 | Print  | Disqus 

By: Jeffrey Nichols

Traders and investors around the world are placing bets on whether or not the U.S. Federal Reserve, America’s central bank, will soon raise short-term interest rates given the continuing ambiguity in U.S. and global economic indicators and continuing volatility in world financial markets. 

Some days there seems to be a consensus in the marketplace expecting the Fed will stand pat, leaving short-term interest rates unchanged for a while longer.  Other days the consensus seems to expect the Fed will sooner or later nudge rates up a tad, possibly voting to do so as early as next week’s FOMC policy-setting meeting.

Voting members of the FMOC are themselves at odds on monetary-policy prospects – and some may not yet know their own minds on the Committee’s crucial vote to hold rates steady for a while longer or move immediately to nudge rates a tad higher, a shift in monetary policy dubbed “lift off.”

Clarification of interest-rate prospects could come as early as next week following the September 16th and 17th meeting of the Federal Open Market Committee, the Fed’s policy-setting forum.  So be ready for turbulence ahead in world stock and bond markets, U.S. dollar exchange rates, and the price of gold. 

Those Fed officials, the so-called “hawks,” who believe the U.S. economy has already entered a period of sustainable growth (with labor markets at or approaching full employment, with consumer-price inflation still below the Fed’s two-percent target, and with the Wall Street bull still very much alive) are likely to vote for lift off sooner than later. 

And then there are the interest-rate “doves” (who believe the economy is not yet on a sustainable growth trajectory and fear Wall Street is already teetering on the brink of a major bear market) who will vote to hold short rates steady near zero where they have lingered since December 16, 2008 when the Fed unanimously cut rates to stem the spreading panic in U.S. and world financial markets. 

What’s all this got to do with gold?  Plenty . . . but not in the way most gold investors, traders, and pundits have come to believe!

Ironically, several years of pro-growth monetary policies – quantitative easing and extremely low interest rates – have not fueled a continuing bull market in gold, as one might have expected, but instead supported a global bull market in stocks and bonds, a bull market that prompted many investors to lessen their gold holdings in favor of ordinary stocks and bonds where anticipated returns exceeded the benefits of holding gold. 

Former Treasury Secretary and presidential advisor Lawrence Summers has in recent days warned that, if some of the global fears surrounding China and a global slowdown ultimately prove warranted, a tip of the Fed toward tightening “risks catastrophic error.” 

There seems to be a global market consensus that whatever the Fed chooses to do – raise rates or not – the U.S. economy and financial markets are in for difficult times ahead. 

We agree that even a small bump up in interest rates could ignite a flight of funds from ordinary stocks and bonds with many investors rushing into gold, perceived as the ultimate “safe haven” and insurance policy against financial disaster. 

Many investors continue to believe an interest-rate hike, even a tiny increase, will draw still more money out of non-interest-bearing gold, as investors seek higher returns on interest-bearing financial assets.

The popular belief that rising interest rates must weigh down gold is not supported by the historical evidence.  In fact, if history is a guide, we should expect rising gold prices to accompany rising interest rates in the next few years – much like the 1970s which saw gold rise from under $35 an ounce to over $850 an ounce in January 1980. 

Again, in contrast to conventional wisdom, gold suffered through an extended bear market in the 1980s and 1990s, a period of generally falling interest rates that “should” have supported rising gold prices.

This time around, higher interest rates will more likely undermine the aging bull market on Wall Street – making stocks and bonds less attractive to investors – thereby re-igniting the bull market in gold. 

 - www.roslandcapital.com 

About Jeffrey Nichols

Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets. 


| Digg This Article
 -- Published: Sunday, 13 September 2015 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.