Gold Does Not Fear Interest Rate Hikes
By: GoldCore
GoldSeek.com
Wednesday, 7 March 2018
– 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.
The Rest…HERE
