Soaring Interest Rates Bad for Gold Prices?
We are seeing interest rates move higher, and this is creating a lot of noise in the gold market. There’s a lot of concern that this could be very bad for gold prices.
Before going into any details, do just one thing: Don’t jump to conclusions based on noise.
Let’s answer a few questions first…
How much have the interest rates increased? If we look at the 10-year U.S. bonds, we see their yields soaring. In mid-2016, yields on these bonds stood at 1.4%. Now, it’s at 3.2%.
If you look at the percentage change, yields have skyrocketed about 130% in a matter of a few years.
Why bother looking at the 10-year U.S. bonds? Because the yields on these bonds, one could say, are the benchmark for how interest rates on things will be. Mortgage rates are highly correlated with yields on these bonds, business loans rates could be set using this yield, and so on and so forth.
What does this have to do with gold prices? You see, it is perceived that higher interest rates are bad for gold prices. The idea is that gold doesn’t provide investors any yield, so investors are better off holding other assets.
Gold Prices Could Drop, But a Great Opportunity Could Be Developing
Now, let’s get into the details…
Here’s the thing: If you listen to the mainstream, it will have you convinced that gold prices will drop. And let me tell you this: Gold prices may, in fact, drop a little.
Rising rates initially take a toll on gold investors’ sentiment.
How low could the gold prices go? Across the board, we are seeing all-in production price per ounce to be around $850.00-$1,000. So, if big speculators join forces, we could see gold prices drop to the production price.
Gold Prices Outlook: A Repeat of the Late 1970s Could Be in the Making
Now, you might be going, “Hold on, what are you trying to say?”
Dear reader, this is something not many are talking about: Gold is actually a great opportunity in times of rising interest rates. It’s actually cheap.