Why High Interest Rates Can Hurt Gold

This past May, gold made a serious recovery after several days of spiraling prices when the US Federal Reserve announced that it was going to keep its rate hikes gradual. After warning markets that the time for rate hikes had finally come following a decade of historically low borrowing costs, many investors were prepared to ditch gold for a booming bond market. With interest rates going up and government debt set to increase dramatically, bonds were beginning to look like a better deal than gold thanks to higher returns.

But then the Reserve announced that it intended to keep rates symmetrical with inflation according to Reuters, which means that bonds and other fixed income investments no longer look like sure wins over precious metals.

In order to understand why this announcement had such a profound impact on gold markets, it helps to understand the relationship between interest rates and gold prices.

Gold prices (and, as a consequence, silver prices) usually suffer when interest rates go up. That’s because gold doesn’t generate any of its own interest. It’s a static investment that only provides a return when you sell it for more than you what you paid for it.

Bonds and fixed income investment produce annual returns based on interest rates. Both are conservative, risk-averse investments, so when bonds start bringing in higher returns, gold suffers.

However, interest rates typically go up in order to keep inflation under control. If inflation is high enough, gold prices go up. Investors worry about negative real returns; when the interest produced by bonds doesn’t outpace inflation.

For more tips on how to invest in silver and gold like this, head online to a silver and gold seller and check out their resources.

No one can know for sure where silver and gold prices will go in the future but there are well-established patterns that investment experts are constantly reanalyzing. While silver and gold sellers are not financial or investment advisors, companies like Silver Gold Bull do provide high net worth clients with an account executive who can provide advice about meeting their goals with gold.

One more factor to consider in all this is how the gold demand dropped in the first quarter of 2018, mostly due to a lack of investor intrigue. Year after year compared to the first quarter of 2017, investment interest in gold was down 27 percent, split between a 15 percent drop in gold bars and gold coins compared to a 66 percent drop in ETFs (exchange-traded funds). However, central banks were singing a different tune. Their gold demand was up 42 percent. When central banks started buying gold, it’s because they worried about inflation and the effects of their own monetary policies.

If you’re worried about inflation or a monetary crisis, you can quickly and easily buy gold online. Check out gold sellers like Silver Gold Bull that ship gold and silver to your home at low prices. These are fine gold bars and gold coins made for investors by mints like the US Mint and the Royal Canadian Mint. Before you start buying gold, do your research and find out what you’re getting into.