iStock.com/Olivier Le Moal
Gold Prices Moving Higher as Interest Rates Increase
Go back to early 2013. At that time, we were told that gold wasn’t worth holding because the Federal Reserve would be raising its benchmark interest rates and stopping its printing machines. This phenomenon sent gold prices tumbling.
Gold prices went from trading around $1,700 in early 2013 to a low of around $1,050 in late 2015.
For precious metal investors, it was just a bad time. No matter where you looked, losses were mounting. Gold-backed exchange-traded funds (ETFs) witnessed outflows, and mining shares’ value were slashed in half, if not more. Remember that this was all based on the theory that gold prices decline when interest rates go up.
Look below at the chart. It shows how gold prices reacted between 2013 and 2015:
Chart Courtesy of Stockcharts.com
Fast forward to end of 2015. This is when the Federal Reserve actually started to raise rates and had completely stopped printing money. Since then, the Federal Funds rate have soared from 0.25% to 1.5%.
The yield on bonds has started move higher too. If we follow the “higher interest rates are bad for gold” theory, gold prices should have tumbled much more when the Fed began raising rates and shut down printing presses.
Instead, we saw the complete opposite. Look at the gold prices chart from late 2015 to now:
Chart Courtesy of Stockcharts.com
Gold actually performed well. It’s up roughly 30% since its lows in 2015.
What’s also interesting to note is that gold prices are trending higher. With this, remember the most basic rule of technical analysis: the trend is your friend until it’s broken. So gold prices could go much higher.
Why Stay Bullish on Gold Prices?
Dear reader, for me, gold prices remaining resilient, as the Federal Reserve is raising rates is enough reason to be bullish.
At its core, this tells me that there are buyers in the market and that sellers have diminished. This could be great in the coming months and quarters.
