So what happens to gold price when IRs start to rise?

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So what happens to gold price when IRs start to rise?

Postby Does Commute Abit » Sun Jul 27, 2014 11:24 am » Firefox 30.0 Firefox 30.0  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1366 x 768 1366 x 768

Hi all

Just looking for your general views on what happens to gold price when IRs start to rise. The topic is complex for those UK based as:

1) There is an argument that interest rates will just never rise for a generation or decade, so I'm wasting my time saying this and starting the thread
2) If IRs go up without US/EU co-ordination in rate rises, there will be currency exchange rate mayhem, so price of gold in sterling could be anything!
3) Conventional argument that gold savings will pour back into cash based investments as cash return improves, although the consequences of 2) on inflation will make this a complex matter of whether cash return is overtaken by inflation. The correlation of negative interest rates to gold price is pretty much trashed now due to the last few years, so again uncertainty.
4) Market jitters and sentiment, and the opportunity for TPTB to hammer "the anti-government currency" of Gold during such times of weakness.
5) TFH arguments. IR rate rises may trigger social unrest (unemployment up big time, particularly youth unemployment as mortgage holding household budgets tighten and consumer spending collapses) coupled with private sectors attempts at rent rises that the masses get angry about.

My view? I think IRs will go up to about 3%, as has been hinted by Carney etc, but slowly and starting after the election. Low IRs are strongly warping the economy, encouraging speculation over industrialisation/investment in people and trashing our future, including the pensions of soon-to-be-retired boomers. I think the government will want to limit house price reductions as IRs go up (otherwise the overexposed banks go pop again and its matters concerning item 5 that dominate) but I think currency fluctuations and gold are both very hard to predict. Hence the question.
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Re: So what happens to gold price when IRs start to rise?

Postby headmelter » Sun Jul 27, 2014 11:47 am » Firefox 30.0 Firefox 30.0  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1366 x 768 1366 x 768

Will we be inflating or deflating ? ... That is another question imo...
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Re: So what happens to gold price when IRs start to rise?

Postby Pixel8r » Sun Jul 27, 2014 1:49 pm » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 1920 x 1200 1920 x 1200

For rates to go up to 3% there would need to be substantial actual recovery, and not just in London house prices, that ain't going to happen. We will be stuck with the ZIRP and QE to ∞ for a very longtime IMO.

Historically gold has done well in times of +2% real rates or lower, considering real rates are more like around -8% (Going off CPI as it used to be calculated) think there is no chance that you will ever see 10%+ rates again.

The other thing to factor is the fact that the metals haven't yet reacted to the massive expansion of the money supply over the last years (x4), due to their concerted effort to suppress the price while doing printing their way to recovery once more. Gold has held it purchasing power throughout history and always does it's accounting, but when you least expect it.
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Re: So what happens to gold price when IRs start to rise?

Postby Pixel8r » Sun Jul 27, 2014 3:26 pm » Safari Mobile 7.0 Safari Mobile 7.0  iPad iPad  Screen Resolution: 768 x 1024 768 x 1024

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Re: So what happens to gold price when IRs start to rise?

Postby Pixel8r » Sun Jul 27, 2014 8:31 pm » Safari Mobile 7.0 Safari Mobile 7.0  iPad iPad  Screen Resolution: 768 x 1024 768 x 1024

Another point to try add in the mix is the trillions of derivative interst rate swap which have been built with rates always getting cheaper. if rates go up we will see the derivative snowball start rolling again and many banks will be revealed for what they are. This is the main reason we will have ZIRP for the foreseeable future and infinite QE, to keep the banking system from facing their bankrupt reality.
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Re: So what happens to gold price when IRs start to rise?

Postby Does Commute Abit » Mon Jul 28, 2014 3:01 pm » Firefox 31.0 Firefox 31.0  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1252 x 704 1252 x 704

Interesting points of view.

5) TFH arguments. IR rate rises may trigger social unrest (unemployment up big time, particularly youth unemployment as mortgage holding household budgets tighten and consumer spending collapses) coupled with private sectors attempts at rent rises that the masses get angry about.

I rule out option 5 as I think the government is just enough in control to avoid meltdown, and also option 1 as its committed to by Carney et al.

I'm a little worried gold will get thumped as investors pile into the increased returns of cash. But need to think about it more over the summer. I will post my thoughts here.
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Re: So what happens to gold price when IRs start to rise?

Postby Pixel8r » Mon Jul 28, 2014 3:52 pm » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 1920 x 1200 1920 x 1200

People will not sell gold to because the interest rate on fiat has gone slightly less negative. The rate would need to increase to around 10% I believe for people to start selling their protection in favour of holding fiat, which there is no way will happen. The thought of a slight increase in rates being negative for gold is not on my mind at all.
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Re: So what happens to gold price when IRs start to rise?

Postby warpig » Tue Jul 29, 2014 11:48 am » Google Chrome 36.0.198 Google Chrome 36.0.198  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1680 x 1050 1680 x 1050

Listen to MA's interview DCA, I think you'll find it interesting. He believes the American, British, Canadian, New Zealand and Australian central banks will raise rates in a coordinated effort to push capital to Europe, but he says it won't work. His comments about gold may cause some to sigh in terms of a potential new low between now and next year and his general time scales for gold moving forward.



The next British general election is 7th May 2015 and if rising rates are coordinated across multiple countries, then the timescale will be based on economics rather than politics, so it could be as early as late this year IMO. I think it's reasonable to expect they will raise rates very gingerly to test the water, so whilst 3% sounds reasonable, I think we could be a year away from that. Rising rates could cause gold to find new lows, historically we've never been in this situation, so to say gold won't drop is a guess in my view, because I certainly think it's a possibility. MA states the stock market will rise with IR's, which could mean the market becomes even more over bought than it is now. So with all of that in mind, this is the most likely scenario I can think of at the moment:

1) October 2014 tapering goes to zero and the US economy is left to stand on it's own 2 feet, with no rate rises before Christmas. They will fiddle with the indexes like the VIX to maintain stability.
2) March 2015 they increase rates by 25 basis points, April there is no increase.
3) May 2015 they again increase IR's but this time by 50 basis points. UK General Election happens and we probably face a Tory/UKIP coalition, but we do get our eurozone referendum around Sept 2015 and we leave.
4) By October 2015 they will have increased IR's by a further 200 basis points before it all starts to fall apart. There will be no disguising the patient was in fact dead and he should never have been removed from life support.
5) The market will probably correct by at least 25% and then they will resume QE, because we've run out of options November 2015. This is when gold starts to perform as they start to increase taxation and they start to implement a cashless society. As MA says, investors will be trying to get `off grid` and IMO gold will be a chief benefactor.
6) 2016 gold finds new highs and continues on during economic strife and war to peak in 2020 as the fat lady sings.

Does Commute Abit » 27 Jul 2014 12:24 wrote:My view? I think IRs will go up to about 3%, as has been hinted by Carney etc, but slowly and starting after the election. Low IRs are strongly warping the economy, encouraging speculation over industrialisation/investment in people and trashing our future, including the pensions of soon-to-be-retired boomers. I think the government will want to limit house price reductions as IRs go up (otherwise the overexposed banks go pop again and its matters concerning item 5 that dominate) but I think currency fluctuations and gold are both very hard to predict. Hence the question.
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Re: So what happens to gold price when IRs start to rise?

Postby Pixel8r » Tue Jul 29, 2014 5:30 pm » Safari Mobile 7.0 Safari Mobile 7.0  iPad iPad  Screen Resolution: 768 x 1024 768 x 1024

Judging from this chart from An FSN article today, it shows rates would need to go to around 4.5% before becoming gold negative.

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Re: So what happens to gold price when IRs start to rise?

Postby Does Commute Abit » Thu Jul 31, 2014 6:17 am » Firefox 31.0 Firefox 31.0  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1252 x 704 1252 x 704

warpig » Tue Jul 29, 2014 11:48 am wrote:Listen to MA's interview DCA, I think you'll find it interesting.


Very much interesting, warpig, thanks. Co-ordination if IR rises globally I agree is likely with the UK doing all it can to force the timing until after the General Election.

I see gold as valuable now, as outlined, as an "off the balance sheets" (or "hidden from the taxman") store of wealth at the moment. Certainly not for capital growth in the next year or two. General rules still apply - buy/sell in less than £5k chunks, if over £10k per 12 month period, then spread your business about a bit with different dealers.
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Re: So what happens to gold price when IRs start to rise?

Postby Pixel8r » Thu Jul 31, 2014 7:44 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 1920 x 1200 1920 x 1200

Does Commute Abit » Thu Jul 31, 2014 7:17 am wrote:Very much interesting, warpig, thanks. Co-ordination if IR rises globally I agree is likely with the UK doing all it can to force the timing until after the General Election.

I see gold as valuable now, as outlined, as an "off the balance sheets" (or "hidden from the taxman") store of wealth at the moment. Certainly not for capital growth in the next year or two. General rules still apply - buy/sell in less than £5k chunks, if over £10k per 12 month period, then spread your business about a bit with different dealers.

You have a lot more faith in their recovery than me then thats for sure. I do see major capital growth for PM's ahead, think we are just about to move into the final stage of the bull run. Kind of agree with Bo Polny's outlook;

Watch on vimeo.com


Why do you think it's best to only buy in £5k chunks and via different dealers if over £10k? If you are buying CGT free Brits or Sovs it doesn't make any difference AFAIK.
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Re: So what happens to gold price when IRs start to rise?

Postby Does Commute Abit » Thu Jul 31, 2014 10:47 pm » Firefox 31.0 Firefox 31.0  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1252 x 704 1252 x 704

Pixel8r » Thu Jul 31, 2014 7:44 am wrote:Why do you think it's best to only buy in £5k chunks and via different dealers if over £10k? If you are buying CGT free Brits or Sovs it doesn't make any difference AFAIK.

Hi Pix
You are right regarding CGT with brits/sovs but dont forget the value of having no paper trail for means testing avoidance. Above these limits, UK dealers report the quantities and buyers. Gold assets in bullion without formal papertrail are a wonderful way to avoid means testing, useful if you lose your job or have to declare your savings for other purposes, like student loans or training/educational bursaries.
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