Rising Rates Create Gold and Silver Opportunity

The 1970s provided ample evidence that a rising interest rate environment is not incompatible with much higher gold prices.  Quite the contrary.  Both rates and precious metals raced higher.

The question that must always be asked is why interest rates are rising.

Four years ago at the annual central bankers’ confab at Jackson Hole, Wyoming, then Federal Reserve chairman Jerome Powell spoke about his commitment to raising rates to wring inflation out of the system.   “We will keep at it until we are confident the job is done,” Powell said.

Never mind what he said.  Or what any of them say.  The job is never done.  Were it not for the windfall that the central bank creates, there would be no inflation.  But it is the windfall that matters.  So inflation has now been above  the Fed’s own target for 65 months.  

The 10-year Treasury yield has reached a multi-decade high.  5.162 percent is the highest level since July 2007.  The 30-year has climbed to 5.45 percent, the highest since 2004.

Yields have moved higher because inflation has stayed well above the Fed’s 2 percent target for more than five years and because markets are demanding a larger premium to hold US Treasury debt, which is now a mountain of more than $40 trillion – and headed much higher.  

Gold’s role as protection against currency and sovereign-credit risk is therefore more relevant, not less. Investors are asking, “why must the government pay this much to borrow?”

It must pay more because of persistent inflation, record debt, and because official gold buying around the world reveals that the world is re-discovering gold and as global alternative to the dollar.

As we pointed out las week, buyers in China are taking lower gold prices as a buying opportunity.  Private investment demand this year through August has driven more than a thousand tons of gold imports.

The question is, what happened with gold prices during that decade and a half of rising interest rates, from 1965 to 1980?

That period of rising rates included the government’s repression of gold prices, and the stagflation decade of the 1970s.  It saw one of the most explosive gold bull markets in history.  

That is because gold and silver cannot be inflated away. 

Speak with a Republic Monetary Exchange professional about prevailing opportunities in today’s gold and silver market.