Do Interest Rates REALLY hurt gold prices?

Do Interest Rates REALLY hurt gold prices?


– There’s a widely held
belief about precious metals and interest rates, which
I’m going to dispel for you right now. People believe that in
environments where interest rates are being increased that
that will be detrimental to precious metals prices. That’s what most people
believe and expect, but historically I can show you that even in environments of raising interest rates, that precious metals
have performed very well. Some investments or assets
like gold have actually increased during periods
historically that there have been increasing interest rates. So, I’m going to explain
to you all of this, how it plays out, what’s
exactly happening, and what to expect from any
interest rates going forward and how that’s going to
affect precious metals prices. (swoosh) (coins rattling) What you’re looking at here
is chart of the interest rates of the Federal Reserve and
you can see here going back to about 1970 where the rates were at. So, right now we’re pretty low. Just about one percent, but
they went as high as 20% when Paul Volcker was the
head of the Federal Reserve back in 1980, in the first
couple of months of 1980 and this is when it was
ridiculous, 20% interest rates. Back then the interest rates
on mortgages were so high that people couldn’t afford them, and my own uncle walked
away from his house. What he owed on the mortgage
and what the payments were were too great that it made
more sense for him financially to just open the door and
walk away and leave the keys, and that’s what he did and that’s what a lot of other people did. The thing is that people believe
that rising interest rates are bad for an asset such as gold because, for example, if
interest rates increase then you’ll be getting a
better yield from things like bonds and money
market instruments where you put down a thousand
bucks and they’re going to pay you three or four
percent or two percent, whereas, something like gold
has no yield or no payment. It just sits there. It has no value in that sense. There’s no recurring
income coming out of it. So, people believe that the
higher interest rates get the more attractive things
like money market instruments and bonds are for people and lot of times people will then lean towards
those types of instruments, rather than something like gold. But I’m not going to
tell you what my opinions and theories are. I’m going to just show
you what all the charts and all the data is showing you, so that at the end of
this you’re gonna know that rising interest
rates are not detrimental to gold prices, not over the short term, not over the long term. They may be over the very short term where people are expecting
what they believe to be true, that interest rates increasing
will be bad for gold, so interest rates start to increase or their expectation on
that results in people moving away from gold
in the very short term, very temporarily, and
that may actually happen. That could be self-fulfilling. There will always be
periods where you may find a whole year where gold
and interest rates trade opposite to each other. So, there are periods
where you can pinpoint them and bring out the chart
and it’ll show you that, yes, in 2006 gold went
one way and interest rates went the other and that’s going to happen. You’re going to be able to find that, but it doesn’t mean that
gold traded that way because of the interest rates, and the more data we look
at the more it supports the theory that there is
no correlation between gold and interest rates. Given quarters, months
and months and months, given years, gold prices
do as they’re going to do regardless of interest rates. There’s a slight correlation,
but really not one that’s at all remarkable or important. And here’s the gold
prices going back over, about the same time frame as
the chart I just showed you. So, starting here gold prices
have done incredibly well. If you remember this is were Paul Volcker was at the head of the Federal Reserve and increased interest rates to about 20%, and they did that to fight
off rampant inflation and generally inflation can
be pretty good for gold. Interest rates tend to rise
during periods of inflation and so generally when
it’s a good environment for gold prices that’s when interest rates are tending to rise higher, but you can see here, as I
showed you on the last chart, this is when interest rates were so high, and this is also when gold spiked, right around here when
Paul Volcker increased interest rates to 20%,
gold also had a spike at the exact same time. And over time, they did very
well leading up til this point with absolutely no consideration
for how interest rates may affect the precious metal. But I’d like to put both
of these into one chart and I was going to take
the time to set that up or have it set up for me, but none of my employees
are here yet today. I just thought, I’m not
going to bother doing it because it’s not necessary. There are other charts out there and anyone can look up
this stuff yourself. It’s so easy to find, but here’s some charts that will show you interest rates and gold on the same chart. If you remember that gold
chart I just showed you gold spiked here, came back down a bit, and then it ramped up
and went a lot higher, while interest rates were
falling and falling and falling, but some of the biggest
gains were even when the interest rates were increasing. So, let’s look at that all on one chart. Here’s a chart I swiped
from disruptiveinvestor.com. I’ve never been to their
site, but you can check it out if you want, but it’s a good chart because it shows you the price of gold going back all the way to 2003. And I’d love to get a chart
that goes back even further, but this is the chart they had and you can see that gold
prices have been on the rise for a while. While interest rates increased,
and while they spiked, and while they’re coming
down, gold prices also continued to go higher because gold is detached
from interest rates now. They’ve always been detached
from interest rates, but people’s myths, people’s beliefs are that interest rates have
some kind of effect on gold. And in the short term, sure they do, but in the longer term gold
does what it wants to do based on psychology of investors,
chaos around the world, have stock markets performing
so many other factors that are unrelated to interest rates. The more data that you look
at the more you can see that sometimes gold
trades almost hand in hand with interest rates. Sometimes it trades absolutely
opposite to interest rates, and there is no consistent
correlation between the two, no matter what most
people seem to believe. Even the media believes
that that’s the case because everybody’s heard it for so long, but they never looked at the actual data, and therefore, if most
people believe one thing that isn’t accurate that
opens up a lot investment opportunities for people. For example, right now we
have a hugely optimistic view on what’s gonna happen with gold, and specifically even more
so, silver and platinum and everyone knows that
interest rates are going to be increasing and
they’re acting on that. First of all, they misunderstand
the real relationship between gold and interest rates. Second of all, I do not
believe that interest rates will be raised even close to
as much as the Federal Reserve has been acting like they will, and I don’t think that
interest rates will increase as much as people are
expecting that they will because I believe that the
economy is dramatically worse than they are letting on
and that’s going to be playing out eventually. Right now they can fake it for a while, just like someone who
gets a job they can fake that they’re a good
employee for six months, but they can’t fake it for a year. Eventually, the truth comes out and eventually people are going to realize that gold prices are on the
rise even as interest rates potentially could increase, but more likely interest rates
will stay flat for a while or they may even come
down and start approaching negative interest rate territory, in which case people
who believe this myth, then they should be buying
gold because that would mean that gold would increase. However, gold will probably
increase based more on the monetary supply than anything. There are so many dollars out there. If the entire nation of the
United States of America has only $10 in total
and you’re going to buy one ounce of gold with it and then all the sudden
you print another $30 and you have $40. It shouldn’t take more
dollars to buy that same one ounce of gold because
the dollars are each a slice or a reflection of
the gross domestic product of the country and that
hasn’t changed all that much, even though the monetary
supply has quintupled. It’s not like the GDPs
increased by a factor of five, therefore, things like
gold or oil or cotton or anything that’s bought in US dollars will seem to be getting more expensive. Now anytime you look at
a shorter term chart, this only goes back to
2015, so a couple of years, or actually, this is a
one year chart from 2015. And for this year, and this is
provided by Sunshine Profits, and they got this information
from the Federal Reserve Bank of St. Louis, and in this year, 2015, you will see that the gold
relationship to interest rates played out kind of like
most people would expect. So, when gold prices fell
that’s when interest rates were rising and vice versa. So, I think what’s happened
here as well as everything else is that in this year of
2015 this relationship held up as people expected that it does. Gold prices increase when
interest rates are declining and vice versa. So, this might have given
more fuel to this widely held misunderstanding, but if you
look at any longer term chart it really demonstrates that
there is no correlation between gold and interest rates. There’s no inverse correlation
where one goes one way, the other goes the other, but anytime you look
at a longer term chart, this one goes back to 1980, 1979 and the sources here are JP
Morgan, Wallstreet Journal, Averanotics, and this is interest rates, and this is gold prices. So, gold prices traded exactly
as they’ve wanted to trade for a while until they spiked and climbed dramatically higher. The dark areas here are
times we are in recession, so, right now should be dark as well because we are in a recession right now. So, I hope that was helpful. You guys tell me. I don’t know. I think that you guys are amazing. Please keep the questions coming. Please keep subscribing to the channel. Spread the word. Share the videos with your friends. Do any of a list of 28
things that I just mentioned. Or do nothing, but you guys are awesome. I’m gonna help you out. My teams gonna help you out. Any questions at all,
reach out, let us now, and I’ll talk to you guys soon. Thank you so much.

8 Comments

  1. Hey Peter, I really like those videos about gold and global economy or the coming recession. Keep up! Maybe you could do more videos about precious metals penny stocks, or how we should approach gold or silver penny stocks. Thanks again for the time you dedicate to us!

  2. I was thinking after your video… The price of golds main influence is the strength of USD, since gold is traded in USD. Therefore, factors that influence USD, such as interest rates, money supply, FED balance sheet, etc can effect the price of gold, but it really depends if that factor actually changed the value of USD.

    Keep up with the videos they are great for learning. Thanks!

  3. Thank you Peter! Please continue your eye opening research about Gold. I am holding on to all my silver and gold mining stocks. You are the best!

  4. Thanks mate for another great video! Jim Mellon (sometimes known as the British Warren Buffett) is very bullish on gold atm. He believes it could go to $5000 in the next few years. He's got some good videos on YouTube. Take a look. Keep up the good work mate!

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