Gold & Silver, STAFF NEWS & ANALYSIS
Gold: Glittering Choice Whether Interest Rates Go Up or Down
By Daily Bell Staff - May 19, 2016

The Federal Reserve may be eying its next rate hike as soon as this summer. Evidence of a possible June rate hike came Wednesday when minutes from the Fed’s April meeting gave a more upbeat assessment of the U.S. economy. “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter…then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June,” according to the minutes. – CNN

In this article, we will discuss why gold, and silver, too, are “golden” no matter where rates end up in June.

Let’s examine the surrounding circumstances.

You see, there are three choices. Either the Fed raises rates, keeps them where they are or lowers them.

Let Fed officials hint that they are changing the status quo and the mainstream media begins to churn out millions of words on the potential shift.

The whole idea is for the Fed to be the center of attention. This supposedly justifies the current economic system. In fact, the current system is a disaster.

A small group of people cannot decide on the volume and price of “money” with any accuracy.

The result is a constant, cyclical wave of booms and busts. The booms grow larger as do the busts. Finally a bust comes along like the one in 2008, and the world economy cannot recover from it.

The world is consumed by depression. And central bank propaganda expands.

In order to save us, they will print MORE money.

They are understand the impression that excess money can create economic growth. They do not understand Austrian, free market economics.

Only human beings and human actions can create growth and prosperity.

The Keynesian model is a lie.

But Fed officials do not acknowledge this. They maintain money printing, which they control, is the key to prosperity.

And now they have decided that the money printing that has taken place since 2008 has moved the economy forward.

There is no real evidence this is so. Something like 100 million US citizens are not formally participating in the work force. The US survives on its gray and black market economy.

So how does the Fed “know” the economy is strengthening. It doesn’t.

Fed officials feel impelled to say the economy is growing because they are worried about all the money they have printed.

That money is contributing to what we call stagflation. That’s when price inflation rises while the economy remains moribund.

But the Fed has to do something to mop up that money. Even something as insignificant as a small hike.

The last hike was a disaster for the stock market. This one will be too, if it happens.

Meanwhile, just as in the 1970, gold flourishes regardless of rate hikes. This is why George Soros and other billionaires have started to buy gold.

In the 1970s, Paul Volcker had to hike rates to nearly 20 percent to get price inflation under control.

Price inflation was driving the purchase of gold and other assets. And today, again, price inflation will drive the price of gold against the dollar.

If rates are not raised, gold will move up on a perception of increased price inflation.

If rates are raised, gold will move up because the stock market will move down.

In the 1970s, gold moved regardless of central bank money manipulation. Now, as then, gold is moving. Not just physical gold.  After some 30 years the miners are starting to move too.

This is good news for people without a lot of money. If gold and gold miners really start to move, people can buy positions in miners for pennies on the dollar and, in some cases, enjoy hefty returns.

It almost doesn’t matter what company you choose if miners drive higher. The whole sector tends to travel.

But if you want to buy a miner, buy one that seems to have a good internal marketing program. For miners, it’s often not the properties that count in a bull market but who shouts the loudest.

We’ve consistently argued in these pages that rate hikes, especially substantial ones, are not going to happen. We’d be surprised if the Fed raises rates in June.

But even it happens, it probably won’t affect the direction of gold and gold stocks.

They’re going higher if rates go up. Or if they remain the same.

The stock market is tapped out. There’s too  much currency sloshing around in the world today.

And economies are still in the doldrums. The trend is toward easy money not tightening.

Watch gold and gold stocks move. And silver too. Silver may have farther to travel than gold.

Conclusion: Such times as these when central banks lose control over their money manipulations do not come often. But they have arrived. Involve yourself as you wish. You may strike gold.

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Posted in Gold & Silver, STAFF NEWS & ANALYSIS
  • Bruce C.

    I agree with this analysis in general and that’s how I’ve invested, but the fact that it’s so rational scares me. The markets still seem very manipulated and the failure of monetary stimulation has been apparent – at least to some – both theoretically and empirically for at least a few years. However, the good news is that only an amazingly small number of investors need to have a change of sentiment for “gold” (bullion, mining stocks, etc.) to move significantly.

    Don’t quote me on this but I believe that if only 3% (THREE percent!) of current investors switch just 10% of their investment “dollars” into “gold” investments, the gold market’s capitalization value would increase by a factor of ten.

    In other words, it won’t take “a great awakening” to experience out-sized yields.

    • Silver Savior

      I think about the time when I realized what US dollars really were and went to precious metals. It was quite an undertaking to research the whole thing but I get it now. It’s just a matter of time when many others do the same. My only regret is not getting into metals even sooner!

  • eyesofgod

    Gold and the other so-called “precious metals” have value in industry as coatings, fasteners, and so on. Diamonds, rubies and other “precious stones” are the same. You cannot eat or drink them. Their value for trade comes in only when they are formed into useful articles like technology (computer parts and such). Otherwise, their value is like paper dollars–whatever people assign to them.

  • Sydney

    Increasing interest rate structure decreases the value of bonds and may also lead to a flow of dollars (albeit a diminishing number of dollars but still sizable) from bonds into metals: ETF’s, miners, or even physical.

    Don’t forget shear number of dollars in bonds is much greater than stocks and shear number of dollars in derivatives are much, much greater than bonds.

    As derivatives are bets against rising rates (?) perhaps increasing rates would lead to dollars out of derivatives and into metals: ETF’s, miners, or even physical. I don’t really know but it could be a significant factor I haven’t seen considered anywhere.

    Yes, increasing inflation drives metals demand. Remember Deflation does (or at least can) too! In a debt based fiat currency system one persons assets are another’s liabilities. Only Gold (maybe silver too) extinguishes debt. After the deflation only Gold is left! Whatever the dollar figure attached gold would then almost certainly have markedly increased purchasing power.

    Of course you also need to take into account third party liability in which case trending deflation may be lead to the biggest flow into physical gold.

    For the people/entities that rule the world with a government granted monopoly on currency/credit/and debt relatively flat metals trading or narrow metals trading channels must be a real tight rope walk with the use of their control of interest rates or simply direct metals market manipulation or both, I guess.

    The strongest argument agains metals may arise when you consider just who has all the money (dollars) and who has the debt? People/entities with debt do not drive markets (metals prices) up only people with dollars do The entities with the dollars are a small and becoming smaller group. Its a club (and you ain’t in it, Ha, kudos G.C.). I have a feeling if one wishes to stay a member of this very exclusive “club” purchasing physical metal on the open market (thereby driving the price higher) is forbidden.

    Thank you for a great web site.

    Best Wishes in Human Action.

    • Silver Savior

      That was interesting. Thank you.

    • Thanks.

  • James Clander

    “If rates are not raised, gold will move up on a perception of increased price inflation.
    If rates are raised, gold will move up because the stock market will move down.”

    Fully agree – – that’s why it’s total Media BS that the Gold Price was knocked down
    just because the fed speak indicated they were going to raise rates. Total BS
    As if a lousy .25% could lever real Gold out of Holders – -ha ha

    • robt

      In the late 1970s in Canada, a gold market commentator (still active as the president of a large financial institution) used to ‘explain’ gold’s price movement on his daily radio show:

      Interest rates went up, and gold went down, because it costs more to carry gold.
      IR up, and gold went up, it’s because IR indicates higher price inflation (commonly and incorrectly referred to as just ‘inflation’).
      IR down, and gold went down, it’s because IR indicates lower price inflation.
      IR down, and gold went up, it’s because IR makes it cheaper to carry gold.

      My analysis is that everything goes up until it goes down, and vice versa, and the only market that is a function of interest rates is the bond market. Or vice versa …
      Hope this helps.

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