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This Is How GOLD Acted During Past Rising Rate Cycles
There we go again: gold investors are panicking as the price of gold dives lower.
Admittedly, the technical picture does not look very constructive. However, we have to put this into perspective. Gold in dollar terms may be under pressure, but gold in euro terms does not look that bad, on the contrary in fact.
Gold in euro is setting a chart pattern of higher lows and higher highs in the last couple of months. Even its 50 day moving average seems to be trending positively.
This picture is similar for most currencies, except the dollar.
However, the focus of the market is on gold in dollar, as the market is concerned about an interest rate hike, based on the 'narrative' that a rate hike is bad for gold.
But is this narrative correct? It wouldn't be the first time that the herd is proven wrong.
Contrary to the 'pundits' and 'writers' who make statements that the crowd wants to hear, we underpin our investigation based on historic facts and figures. In particular, we analyzed gold's reaction after interest rate hikes in the last decades (as of 1972, when gold started to trade freely).
You will be surpised about our findings!
The first increase of the Fed Funds Rate (the official term for interest rates, used by the Federal Reserve) took place between February 1972 and July 1974.
As you can see on the above chart, gold rose from approx. 40 USD/ounce to 180 USD/ounce (x 4!), as the interest rate increased from 3 to 13%.
The next period of interest rate hike(s) was between June 1977 and March 1980, which was a time characterized by an exceptionally high inflation rate.
Once again, the price of gold went sharply higher, from approx. 100 USD/ounce to 800 USD/ounce: an 8-fold increase!
That period was very volatile, as the Fed brought interest rates sharply down after peaking. Because of that, and the fact that inflation remained stubbornly high, the Fed had to increase rates between July 1980 and January 1981.
Gold remained in a trading channel, between 600 and 700 USD/ounce, which indicates that gold had 'sniffed' the fact that inflation was moderate.
Soon after, inflation started to soften, which gave the economy a significant boost. In that time period, the Fed intervened several times to avoid an economic overactivity.
The next interest rate hike took place between February 1983 and September 1984.
As of then, gold lost significant value: the price of the yellow metal declined from 500 to 350 USD/ounce, as the interest rate rose from 8.5% to 11.5%. Note that those were still relatively high interest rates, given historical averages, which points to the fact that centrale bankers were still concerned about inflation.
The next period of interest rate hikes is between September 1986 and April 1989.
Initially, the gold price reacted positively, as it rose from 400 to 500 USD/ounce, but as the central bank pushed interest rates aggressively higher in the second half of that period, the price of gold declined again to 400 USD.
That brings us to the 90's, a decade which was characterized by economic prosperity and low inflation. The first interest rate hike took place between December 1993 and June 1995.
This is another period which wasn't negative for gold, in the context of a rate hike, as the metal remained in a trading range between 375 and 395 USD/ounce.
Towards the end of the 90ies, the Fed had to intervene again to avoid a large scale economic heating driven by the technology boom.
In a matter of 1.5y, the interest rates almost doubled, but gold remained basically moving in a trading range between 250 and 330 USD/ounce.
After the dotcom bubble bursted, the Fed only started hiking rates again as of May 2004 until July 2006.
And right at the moment truly nobody believed gold would ever recover, the price of the metal rallied significantly during the second part of that period from 400 to an intermediate peak of 700 USD/ounce.
The above discussed periods highligh the most significant interest rate hikes after gold started to trade freely in August of 1971.
What can we learn from this?
- 3 periods with a positive impact on the price of gold
- 2 periods with a negative impact on the price of gold
- 3 periods in which gold traded sideways
That being said, how can any serious person conclude that gold will, without any doubt, trade lower in the next interest rate cycle? Statistically, we just proved that it was the case in only 2 of the 7 instances.
Moreover, the two periods in which gold was negatively impacted by interest rate hikes happened after a period of exceptionally high inflation.
When the economy was booming while disinflationary, gold remained flat with interest rate hikes. A well chosen entry point in a gold investment gave a very interesting yield.
That brings us to today. If the Fed is going to engage in a new interest rate cycle, they will do so to control rising inflation.
As we are exiting a period of exceptionally low interest rates with a moderate economic growth, present times are comparable to the time period 2004 to 2006.
As interest rates rose during those years, the price of gold followed that path higher as of the moment the Fed engaged in a monthly rate hike. During the last phase of rate hikes, gold started to rise even exponentially.
We believe that this path will be repeated in the future. We will most likely see a pattern of higher lows and higher highs, as gold's decline is about to stop when they hike.
We do not anticipate a spectactular rally in the short term as that is typically a move that unfolds in a later stage of a bull market. Also, it goes hand-in-hand with rising inflation concerns. Astute investors know this is a time to be accumulating the precious metals, not fleeing it.
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Any conclusions based on data from a time before our current gold derivative marketmarket was in place has to be suspect. In the 1970s there was physical gold and...um...
Any conclusions based on data from a time before our current gold derivative marketmarket was in place has to be suspect. In the 1970s there was physical gold and...um...
Not trading your gold for fiat? Not even to pay your rent or your utility bills, or medical bills, either yours or those of a loved one?
I can't believe how hard it is to get people to understand that everybody selling gold (or silver) is not selling because they're panicking that it's going to go lower. They're selling for whatever price they can get because that's all they have left to sell, because they have no other means of keeping a roof over their heads, the electricity and gas and water connected, and their loved one(s) alive.
And by the way asswipe -- whether toilet paper or baby wipes (if you're serious about doing a good job) isn't free. And you have to pay for it with fiat. And you have to get the fiat from somewhere, somehow.
Not trading your gold for fiat? Not even to pay your rent or your utility bills, or medical bills, either yours or those of a loved one?
I can't believe how hard it is to get people to understand that everybody selling gold (or silver) is not selling because they're panicking that it's going to go lower. They're selling for whatever price they can get because that's all they have left to sell, because they have no other means of keeping a roof over their heads, the electricity and gas and water connected, and their loved one(s) alive.
And by the way asswipe -- whether toilet paper or baby wipes (if you're serious about doing a good job) isn't free. And you have to pay for it with fiat. And you have to get the fiat from somewhere, somehow.
Any ideas on how gold will be "priced" assuming fiat everywhere simply went to zero?
All the physical gold in the world divided by all the "hard" assets in the world??
Anyone have a formula for that???
Come on, sell your gold and silver, don't ya trust the Zionist banksters and their fiat paper?.....and no i'm not a Jew hater, just a Zionist banker hater.
....and no i'm not a Jew hater, just a Zionist banker hater.
It's nice to read someone here who knows the difference.
As opposed to the pyscho muslim oil sheiks, Hillary Clintons of the World or Georg Bushes of the World??
What a choice!!
Blah blah
All these assets are 100% correlated through the Forex. If you bought gold with dollars and dollars go up you could sell your gold and buy the now cheaper Euros....no real gain.
All this article really says is if you are in a currency zone that is allowing the currency to devalued, you can protect with gold.
It is not like you could arbitrage anything here. You could not gain by say buying gold with Euros....you'd still get the same number of dollars.
My point is that gold rising in a currency is only relevant to those who must hold that currency. There is no opportunity here. These gold shills try to make it sound like 'hey, gold is going up in price over there' (with the subtle implication that it could also go up here).
The dollar is the only currency, all else including gold, is tied to it via FX.
Finally, a solid signal here amongst the noise.
Guns & Gold Bitches.. nobody ever got fired for Buying Either...
I have to poop. Poetry time.
Paper sucks, you Wall Street fucks!
I'll see you vampires in the sun,
with my loaded silver gun.
Yer goin' down in paper flames,
from Lower Manhattan to the Thames.
Your paper is I know not where,
I'd rather shit my underwear!
For, be there bull,
or be there bear,
silver is the suit I wear!
(With gratitude, and apologies to Dr. Seuss.)
The only paper I own is the stuff I wipe my ass with.
Market paper is worthless, because I cannot do a good job of wiping my ass with it.
Gold was worth $28.00 an ounce when I was a kid. Silver was worth whatever was printed on the coin you spent. Any one think those days are coming back?
All of the lying bum fucking aristocracy of the Age Of Paper Power can burn in their paper suits soonest.
I won't even bother pissing on them to put out the flames.
I collect gold, silver, lead, copper, real dry powder, food, tools, diesel fuel, and other useful commodities. There is a community of folks all doing the same, so skill sets and extra eyes and hands can guard each others sixes.
That Jim Morrison moment is coming. "break on through to the other side, break on through to the other side, YEAH "
HFT ain't so good for me.
Credit defaults far as the eye can see.
CDS's gonna make some messes.
Boo hoo hoo as thieves confesses.
TBTF gonna fall off a cliff - REAL NEAT.
Wall Street is a bunch of fucking dead meat.
Politicians at state and in D.C.
Rob and thieve instead of represent the people you see.
Their day is coming for proper restitution,
As folks revert to the laws of the Constitution.
Banks used to be so overleveraged bold.
Now, they're layin' bankrupt,dead and cold.
Gonna be nothing left but prepared people,
All the rest gonna be surprised fucked up Sheeple.
God bless this mess.
I must confess.
I'm a fucking poet,
and didn't even know it.
You know who you are out there.
The challenge is to honor truth, justice, and the original American Way.
Be the best Boy Scout you can be, Be Prepared.
God bless The Real America.
Silver lover...here is a tip
Gold is almost 100% bought as a wealth asset. Silver is probably 50% wealth asset and 50% industrial.
IF there is a downturn and there is less silver demand from industry the bid side takes a hit. With fewer bids the price of silver could plummet fast.
The same fact (that silver has more uses) is a curse when one of those uses is eliminated. The price would not just drop 50%....it could drop 95%.
Be careful...they don't call it the devils metal for nothin.
Nice but the fact of the matter is that silver always rises and lowers faster than gold, Gold runs about 30-35 times the value of silver WHEN in normal equilibrium (not being malipulated) and is used as much as money as Gold during times of fiat currency collapse. Both have their uses at the moment outside of of industrial uses.....
If you are looking at the industrial needs over the next few years, you are missing the point of what is coming!
Hey lasvegaspersona,
I don't think so. Yes, in a downturn silver will take a hit from the reduction in industrial demand, butt, the demand from stackers will reduce that significantly. I made an inquiry to my local PM dealer about junk silver and it is really really hard to get. Silver might go down 50%, but I don't see it going dowm more than that and I don't see it staying there for long because the socio-economic ponzi scam will be unravelling beyond the point of denial.
Frankly, I think the bwankers right now are massively constipated from chronic ass pucker,,,
;-D
‘demand from stackers will’
I think in most downturns people sell their metals at the front end to make house payments.
Nearer to the end of the downturn, we all know they lose their houses and buy silver.
It’s that first wave... of people who bought things they should not have purchased.
The United State is a house that has not been cleaned for over 150 years. I think it’s time for a good scrubbing,,,
;-D
Problems with gold start with the unit cost ratio versus silver.
Almost all gold mined is still in existence.
Paper gold has not been as mercilessly manipulated as silver paper because of the influence of institutional and governmental gold asset holders.
Silver mining has dwindled to incidental recovery as a by product of copper, nickel, and lead mining - pure silver mines were played out for the most part over one hundred plus years ago.
Down turn of economy will not deter the most significant modern day usage of consumer electronics - the smart phone. Silver is the most efficient conductor of electricity on a unit cost basis.
Economic recovery of silver in consumer electronics is not feasible, even in China. Economic recovery of silver used in most other modern day applications of silver is not feasible either.
The ten percenters will never stop wanting new consumer electronics, and they survive down turns to the economy just fine it seems.
Add in the newer industrial uses of silver that also shrug off economic issues out of necessity - medical wound dressings, water purification filters, etc., and you have a continuing demand for a metal whose annual production has been falling for decades.
So, you have an indispensable metal being consumed by industrial use constantly, declining in mining production, and under supply pressure to serve both the industrial and monetary silver markets.
Take away the paper manipulation of 2 - 300 times the available physical silver available in the market, and there's a problem with price discovery for the real deal versus fantasy paper silver that never existed.
Lastly, the uncertainty of a major economic event always moves people to seek out safe haven for their hard earned money. Fiat currency has a history of failure for thousands of years, a near perfect track record of failure.
Silver and gold have a five thousand year history of recognized value in times of uncertainty, more so than any other commodity you can name that is portable, incorruptible, stable, and internationally recognized.
To summarize, with silver spot trading for substantially less than the cost of production, I see no down side to investing in it as a safe haven.
If the whole world burns, silver will be a recognized form of currency far easier to trade with than anything else short of 22 LR ammo.
I would rather dance with the silver devil than take on Wall Street, Goldman Sacks Biters, JP Morgan Chase, banks, politicians, the Fed, the CIA, NSA, DHS, IRS, and all of the other thieves on the loose out there.
Not sure I care much. Not trading my gold for fiat asswipe.
Gold is the enemy of governments, Governments are corrupt , unaccountable and incompotent. The only things they are good at is stealing and killing people who oppose the theft.
>>>The only things they are good at is stealing and killing people who oppose the theft.
True, but they're not bad at "sharing" stolen goods with those individuals. both great and small, who advance the scam; for the well-connected, they can be downright generous (see: Clinton, William J. and Hillary R.)
Depends on the kind of gold, heavy and shiny or lightweight and papery......
you didn't read the post now did you?
interest rates of 11,5%... like that can ever happen again with a debtload like today...
This isn't a "rising rate cycle" anyway. Ol' Yellen is just rying to keep everyone in the Christmas spirit. Any "real" rate rise is going to knock us to our knees. I expect this little bump in December will create havoc and then be used as an excuse to initiate QE4.
Hang on to your hats ZHers, the ride is just beginning,,,
;-D
No it doesn't.
There is a shit load of gold out in the world and when things start to get sold down hard gold is going back below 500/oz; deal with it.
The ride always ends. Place your bet.
Just keep stacking.