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The Mesh Report – Gold Proves Resiliant In Face Of Interest Rate Rise
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Gold Proves Resiliant In Face Of Interest Rate Rise

Mike Hammer March 16, 2017 Comments Off on Gold Proves Resiliant In Face Of Interest Rate Rise

The popular line is that gold prices decrease when interest rates rise. That statement is true in terms of fundamentals, but incorrect in real-life results. It’s true because gold doesn’t pay interest, so “fundamentally” people will seek a higher rate of return when it becomes available.

In reality, things aren’t often that simple. When “the basic economic fundamentals” were invented, we didn’t really have central banks. Interest rates rose because of supply and demand out in the real world back then, when people were making decisions without so many variables in play.

In the modern world, we have dozens of central banks – representing countries, economic unions, and independent consortiums like the IMF – sticking their fingers in the markets, trying to fix all manner of ills they see.

Fortunately, these groups are generally not completely at odds with each other. But in the case of currency valuations, they often are.

So in the real world, when one country raises its internal interest rate, the value of that currency can be expected to drop. IF there is nothing else standing in its way. Which was the situation yesterday. There wasn’t bad news out of Europe at 2PM Eastern, no saber-rattling with the North Koreans, no bad news from the EU. So the dollar dropped, which led to a rise in gold.

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