We got a lot of comments on last week’s column about what gold did following the Fed’s interest rate announcement. In case you had a GREAT weekend and you’ve completely forgotten about it, the Fed raised their base interest rate by 1/4 point. Gold responded by going up rather than down. Your friendly Gold Enthusiast noted that fundamentally gold should go down when interest rates rise, because in a logical world capital would flow toward where it can get the highest return.
As expected, our virtual mailman had a field day with all the notes and comments. And not surprisingly, from both the “up” and “down” proponents.
Both have good arguments of course. The down-siders have the fundamental argument along the lines stated above.
The up-siders point to history. Historically, when the Fed raises rates, gold goes up! Now why would that be?
As noted in previous Gold Enthusiast musings, rising interest rates add cost to borrowing money. Rising costs increase uncertainty about profits. And gold goes up in rising uncertainty periods.
But is all uncertainty the same? Of course not.