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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: philv who wrote (4272)1/2/2004 1:09:31 AM
From: mishedlo  Read Replies (1) of 110194
 
Thread question: If the Fed raises rates, what effect would that have on the POG?

I think gold is tied to many things

1) the US $ index
2) The balance of trade
3) Interest rates
4) fear
5) whether inflation, deflation, or stagflation is happening
6) liquidity in the markets and money supply in general

Some of these are inter-related
Rising interest rates will add some support to the US$, but the US$ in general is more dependant on balance of trade issues and interest rates in the US vs abroad.

I think there MAY be an exodus from gold if there is a sense that deflation as opposed to inflation is what is happening. I think gold will act best in a stagflationary environment, but should do well in all enviroments after the INITIAL and possible sharp drop in a deflation scenario.

What happens IF the us raises interest rates?
Will it kill housing or will it be a good thing?
The answer to that might determine how gold reacts in the intermediate term if there is indeed a hike.

There are so many inter-related variables here that I am not sure proper conclusion can be drawn. If and when it happens, will the first move be a huge headfake?

Let's wait and see, cause I do NOT think interest rates are going to be hiked anytime soon UNLESS there is a substantial pickup in jobs and wages. Others here disagree, but I doubt they disagree much with that complex set of variables. Since there are so many variable, trying to judge what happens when one changes is problematic IMO.

Mish
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