Rate Hikes and Gold

Gold is always seen as the perfect hedge against inflation and the best way to balance your portfolio. Diversification, securing retirement, and having a liquid investment are all great reasons to invest in gold. As interest rates keep going up, you might be wondering what your next move with gold is. Keep reading to learn more about interest rate hikes, what the experts say, and how to get involved with investing in gold.

Rate Hikes and Gold: Why Are Rates Going Up?

According to Investing, an interest rate is the percentage of principal charged by the lender for the use of its money. The principal is the amount of money loaned. Interest rates affect the cost of loans. As a result, they can speed up or slow down the economy. Interest rates are changing due to three basic factors.

1. As with every financial component, supply and demand affect interest rates. More specifically, supply and demand concerning credits. This means that if the demand for credit is high, the interest rates will be high and vice versa. On the other hand, if the credit supply is higher, the interest rates will be low. This is how the supply and demand of credit affect the interest rates.
2. The inflation rate is another factor that affects interest rates. Higher inflation leads to higher borrowing needs due to weaker buying power. On the other hand, lenders need higher security and ask for higher interest as compensation for the decrease in the purchasing power of the money, which will be repaid to them in the future.
3. Governments use interest rates as a monetary policy tool. By increasing the cost of borrowing among commercial banks, the central bank can influence many other interest rates, such as those on personal loans, business loans, and mortgages.

Rate Hikes and Gold: What the Experts Say

According to Investopedia, many investors and market analysts believe that, since rising interest rates make bonds and other fixed-income investments more attractive, money will flow into higher-yielding investments (such as bonds and money market funds) and out of gold when rates move higher. Therefore, when the Federal Reserve raises its benchmark federal funds rate, weakness in gold should follow.

However, there’s little evidence that gold is consistently weakened by federal funds rate hikes or Treasury yields. Despite some negative correlation in the 2000s, there are far too many instances of gold and interest rates rising together to say that high interest rates cause gold prices to fall.

Ultimately, the relationship between gold prices and interest rates is uncertain and unstable because gold is traded on a global market subject to forces far beyond the reach of the Federal Reserve.

CNBC adds, Gold prices extended gains on Wednesday as minutes from the U.S. Federal Reserve’s November policy meeting showed a “substantial majority” of members opting to slow down rate hikes.

Spot gold rose 0.6% to $1,750.38 per ounce, while U.S. gold futures settled 0.6% higher at $1,750.90. “Gold traded higher in a relief rally after the Fed minutes contained no hawkish surprises and just about confirmed the pace of hikes would drop to 50 bps in December,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York. A slower pace would better allow the Federal Open Market Committee to assess progress toward its goals of maximum employment and price stability, as per the Fed’s Nov. 1-2 meeting minutes.

Also helping gold, the dollar was down, making gold cheaper for holders of foreign currencies, while benchmark treasury yields were also lower for the day. Additionally, U.S. business activity contracted for a fifth straight month in November, with a measure of new orders dropping to its lowest level in 2-1/2 years as higher interest rates slowed demand.

Investing in Gold Amid Rate Hikes with Priority Gold

When it comes to rate hikes and gold, many market watchers believe that higher interest rates will send gold lower because of increased competition from other investments. However, gold has proven time and time again to be a solid investment that will hedge against inflation, diversify your portfolio, and allow you the liquidity of cash you need during uncertain economic times.

A great way to invest in gold is with a precious metals IRA. We have a proven four-step process that makes it easy to open a precious metals IRA, and we guarantee you the highest caliber customer service. Our IRA specialists will answer all of your questions, work with your current custodians to ensure a seamless transition, provide you a free metal evaluation, and continually help you to review your portfolio.

If you are ready to invest in gold to protect your savings and secure your future, we can help. Priority Gold is one of the most trusted precious metals dealers in the United States with a BBB A+ Rating, AAA Rating with Business Consumer Alliance, and 5 Stars Rating with TrustLink.

We specialize in providing precious metals investment services with Security, Liability, and Great Convenience for customers. Our team is committed to helping to streamline their precious metals purchases at a fair price, selecting the right precious metals portfolios, and meeting their important financial objectives.

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