Higher interest rates channel money out of gold and bonds into the stock market.
Larry Summers's explanation for Gibson's Paradox is pretty much bullet proof. Gold does well when inflation is high and rates are low. Its rise in price under those circumstances is the 'yield' many think gold does not have. It is the antidote to negative real rates.
In my estimation, higher rates will indeed tank gold but do so only temporarily as they are indeed indicative of macro difficulties.
What needs to be thought about - and hard - is the fact that interest rates have been abnormally low for a very, very long time. They may simply be reverting to a more realistic level. If inflation, which is terribly mis-measured, stays at present levels as measured by the fraudulent CPI, and interest rates continue to go higher, gold will absolutely, positively go down. The present pressure on gold is IMO a reflection of this possibility.
Having said that, the USD is indeed in very big trouble. Its difficulties are masked by the Euro's troubles and its status as a reserve currency, not to mention the fact that China, Japan and others hold huge amounts of it and are likely to support it as a matter of simple self-interest.
In the short term, however, it is quite possible that gold's run has come up against a brick wall of rising interest rates. It will undoubtedly resume its march forward but when it will do so is unknowable. One would think that sooner rather than later, given the fiscal and monetary follies we are witnessing, but who knows.
Am I selling? A bit. I'd be foolish not to take some profits and use them to buy later at lower prices. My PF is very highly concentrated in gold and miners, so some selling under the circumstances I see is a rational thing to do. |
