Last Time Interest Rates Soared, Gold Prices Skyrocketed
The recent sell-off in gold prices has taken investors aback. We are hearing the same question that we heard last year: Is gold worth holding as interest rates are rising?
You see, this was the reason why there was a big sell-off in gold prices back in 2013, too. Investors are fixated on the idea that gold is a bad investment when interest rates increase. This may not be true.
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Look at what happened to gold prices between 1972 and 1982. During that time, we saw interest rates soar. Yields on 30-year bonds increased from near six percent to 15% in that decade.
What happened to gold prices in that period? If gold declines as interest rates increase, the yellow precious metal should have plummeted in value. This was not the case then. Gold prices jumped from around $45.00 an ounce to $450.00 an ounce at the end of 1982!
Simple math here; gold prices increased 900% as interest rates increased 150%.
This pours a lot of cold water on the theory that gold is a bad investment in times of rising interest rates.
Here’s one more thing, and it’s logical as well; if the precious metal loses value when rates go higher, why did gold prices only start a massive bull run in 2002 when interest rates have been declining since the 1980s?
Looking at all this, it really has to be questioned if gold prices and interest rates have much correlation. In the short term, there may be some. In the long term, there’s strong evidence suggesting that interest rates don’t really matter for gold prices.
If Not Interest Rates, What Really Impacts Gold Prices?
It must be understood that gold is a play on uncertainty, currency devaluation, and inflation.
As it stands, we have an abundance of uncertainty.
If you look at major economic hubs, they are struggling. Eurozone growth remains dismal, the U.S. is slowing down, China is reporting anemic conditions, Japan remains stagnant, and the list goes on.
But economic hubs slowing is just one thing. Currently, there’s even a threat of a nuclear war as well.
All of this could be good for gold prices.
As for currency devaluation and inflation, know that printing presses at central banks around the world are working at full throttle. Over the years, they have printed a lot of money. They have created “monetary inflation.” This is when there’s too much money supply. Ultimately, this ends up becoming price inflation. So inflation across the globe could be much higher than it is today. Obviously, this could be great for gold in the long run.
Dear reader, looking at all this, I can’t help but be bullish on gold prices.
The recent sell-off in gold could be nothing but another buying opportunity. The yellow precious metal remains severely undervalued. It could provide immense returns in the next few years. Don’t be shocked if it even doubles or more from where it currently stands.
I will end with this; the yellow precious metal is being ignored for all the wrong reasons. It could be the next big trade in the making.
