Loading ...The standard answer is that rate hikes make the dollar stronger and are a head wind for the dollar price of gold.
Gold rose from $35 to $197.50 between 1970 and the end of 1974, an increase of more than four times. During that period, the Bank of England’s base rate rose from 5% to 13%. The Fed’s discount rate was 4.5% in 1972 and rose to 8% in August 1974. So, a rising gold price was accompanied by a rising interest rate, contradicting the conventional wisdom of today. Gold went on to hit a peak price of $850 at the afternoon fix of 21 January 1980, when the Fed’s discount rate was at an elevated 12%.
The current belief that rising interest rates are bad for gold was disproved by those events. The reason gold rose had little to do with interest rates, and everything to do with accelerating price inflation.
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The moment when the majority of folks believe the market cannot correct is precisely when it will. Those who believe the central banks are all powerful will be sadly mistaken to have worshiped such false idols..
Love,
The Black Swan
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Rally Program #1 run today. No matter what the FRB does, it will be “good” for the market. If you want to know why, simply review the liabilities of our public pension system.
Pensions are severely underfunded after a decade of 0% interest rates. The saving grace has been this engineered bull market. Poor stock performance as a result of a recession would be a disaster. Remember, pension fund success depends on 8% returns per year, FOREVER. A never ending bull market is a requirement, not an option left to free market forces.
And don’t forget that over $2 Trillion in taxes are due by Baby Boomers on their 401K’s. Uncle Sam can’t collect what he needs if the market crashes.
Our financial system simply cannot withstand another downturn. So there won’t be one.
Why else do you think bad news is always “shrugged off” or turned into something “good”.
The stock market is just another Federal Program. Think of it as a Social Security fund for the rich.