Can someone explain what is going on? Why would rate hikes hurt precious metals? I thought they were seen as a safe haven against economic shock and if rates would hurt equities, shouldn’t metals be a safe haven?
If you do a search across time you can find just as many articles talking about cuts hurting metals as hikes, and as many others talking about both sides of any other macro event.
These articles are meaningless, it’s empty minded fodder generated to gather clicks from lemmings who don’t know any better.
People may reply offering a convincing sounding explanation, but if you run that against historic trends you’ll find that it falls flat. Gold has exhibited a loose negative correlation over time to expected long term real interest rates (not nominal, not short term, this is important). But it’s incredibly inconsistent and random in terms of timing relative to those shifts.
Those above relationships were also much stronger in decades past, with almost any useful metric for Gold behavior becoming increasingly useless across the last 2-3 decades.
Not saying you're wrong, but to my eye (which, granted, isn't the most precise way to measure), it does seem like the price of gold has been on the decline for about a month or so. To me, that indicates there probably IS a reason why gold is dropping in value, in contrast to the drop being due to statistical noise.
So where's the disconnect? Would you argue my eye is wrong and there isn't a real decline? Or are you saying the decline is real, but "rate-hike fears" are not part of the reason why?
Rather than just using your eye it’s best to run actual correlations and see relationships from there, as they did in the above link.
But “rate hike fears” misses the actual loose relationship that does exist, which is long term real rates. Short nominal rates are often out of line with long real rates.
Also tbh the use of the word “fears” is a pretty easy tell that the article is meant to stir emotion rather than convey information. They’re expectations priced in to fixed income markets, not nebulous fears.
The value in gold is holding value better than cash. For an institution, the closest thing they have to cash is short term treasuries. As long as the real interest rate (IE accounting for inflation) on USD is positive, then you're losing money holding gold
Gold and Silver are static. 1oz of gold held in ancient Greece is 1oz held by a Mongolian Khan is 1oz of gold held by you in 2026 or some future humans in 2126.
Gold doesn't make more gold. Silver doesn't make more silver. But cash invested into notes and bonds creates more cash in the form of interest.
If interest is at 0% then holding gold will be a more attractive because you're not getting anything to hold cash or dollars. If interest is at 20%/yr then many folks will leave gold for cash because bonds/notes are paying out +20% guaranteed while 1oz of gold only guarantees 1oz of gold.
Another factor is inflation. If inflation is high over the long term then folks will expect BOTH gold to go up more over the long term AND the value of dollars decline. It's a double win for gold.
But higher rates often tempers inflation. So it's a double L the other direction. You're expecting to get higher interest payments but the higher rates to temp down inflation more.
Real question is if it's enough. I say it's not since our national debt is $38T (and rising). Global national debts are also rising. Central banks are building gold stockpiles. Trump is increasing uncertainty doesn't help. I think gold will remain strong in the long run.
Also that article has the typical trigger/gaslight hot take title designed to grab attention, get clicks, and generate ad revs. Gold is fine. It's """"""""tumbled"""""""" from it's highs back to were it was in last December. So half a year ago. Ohnononono! The horror!
Look at fucking China's CSI300 index. If you held it from 2007. 20 FUCKING YEARS OF OUR LIFE. You'd still be down around -10%. And that's China's S&P500 btw. It's own top 300 companies. China's real estate market? Total collapse. China's small biz? Curb stomped by big corps or those with guanxi connections. China's big business? Curb stomped by the CCP. Corporate bonds? Defaulted as big RE blew up or crushed as rates rose. Gov bonds? BTFO by both rate hikes AND inflation. That's why the Chinese citizens are buying gold even as the government buys too.
Rate hikes increase the value of the currency and decrease inflation. Precious metals are usually seen as a hedge against inflation and currency devaluation. When rates go up, the demand for them goes down.
The safe haven mentality is probably why they've held up as well as they have - I would have expected a much sharper decline after they bounced off the peak some months ago. . But the other major factor driving the run up was surplus capital trying to find somewhere to go, and rate hikes reduce the pool of surplus capital.
They said "as" this happens, not "because" this happened.
When an article about economics use the word "as" it means that they bring it up because it is a thing happening at the same time that might be relevant, in economics you rarely know what is the cause of a rise or drop so "becasue" is rarely used.
What this headline is saying is two thing.
Gold and silver is tumbling
There is rate hike fears that happening roughly at the same time, might have something to do with it.
The market is confused. Once the market catches up it will realize that there will be no rate hikes and that the value return of placing the money on hold compared to bonds will be much better.
This is because the real return is net zero anyway if money is placed on bonds rather than gold. They need to hike much more for it to be profitable. But they cannot do this because it breaks the system
Yeah, I'm not buying that there's rate hikes high enough to deal with inflation, especially as the US debt continues to explode and needs to be rolled over.
Don't forget about midterms, Trump sworn in Kevin Wash to prevent rate hikes, not to hike rates. Matter of fact Trump has been forcing the former FED chair to reduce rates but didn't work. There will be no rate hikes, they are just trying to scare you into selling so they can buy more.
Wash isn't the only vote - but yeah, I don't see anything more than window dressing happening. The US can't make the numbers work otherwise.
It's not 1979 - if you jack the rates, the interest on the debt means massive amounts of interest payments go out. Which means you either collapse the economy (depressing receipts, and making you find more money somewhere) - or you print it. It seems we've finally reached the point where the K economy is so severe that even marginal propensity to spend is overcome, and the interest from the debt will actually drive demand and thus inflation.
So either you don't raise rates, and get inflation . . . or you raise rates, and get stagflation.
Yeah, real yelds are gonna go negative in USA via inflation regardless there will be max 1% raises ahead (no more because 40 trillion debt, worst case scenario) So you put 1 mil in bonds and lose 50k a year. Good deal? Hell no.
Total unemployment is aprox 12% now, witch effect gbd badly because 2/3 comes from private consumption. Remedy is money printing as it has been last 100 years now. Yeld rates effects consumption too...
The market is confused. Once the market catches up it will realize that there will be no rate hikes and that the value return of placing the money on hold compared to bonds will be much better.
This is because the real return is net zero anyway if money is placed on bonds rather than gold. They need to hike much more for it to be profitable. But they cannot do this because it breaks the system
Plastic-Injury8856 | 9 hours ago
Can someone explain what is going on? Why would rate hikes hurt precious metals? I thought they were seen as a safe haven against economic shock and if rates would hurt equities, shouldn’t metals be a safe haven?
RIP_Soulja_Slim | 9 hours ago
If you do a search across time you can find just as many articles talking about cuts hurting metals as hikes, and as many others talking about both sides of any other macro event.
These articles are meaningless, it’s empty minded fodder generated to gather clicks from lemmings who don’t know any better.
People may reply offering a convincing sounding explanation, but if you run that against historic trends you’ll find that it falls flat. Gold has exhibited a loose negative correlation over time to expected long term real interest rates (not nominal, not short term, this is important). But it’s incredibly inconsistent and random in terms of timing relative to those shifts.
Those above relationships were also much stronger in decades past, with almost any useful metric for Gold behavior becoming increasingly useless across the last 2-3 decades.
https://www.chicagofed.org/-/media/publications/chicago-fed-letter/2021/cfl464-pdf.pdf
hungryhungrynippos | 8 hours ago
Not saying you're wrong, but to my eye (which, granted, isn't the most precise way to measure), it does seem like the price of gold has been on the decline for about a month or so. To me, that indicates there probably IS a reason why gold is dropping in value, in contrast to the drop being due to statistical noise.
So where's the disconnect? Would you argue my eye is wrong and there isn't a real decline? Or are you saying the decline is real, but "rate-hike fears" are not part of the reason why?
RIP_Soulja_Slim | 8 hours ago
Rather than just using your eye it’s best to run actual correlations and see relationships from there, as they did in the above link.
But “rate hike fears” misses the actual loose relationship that does exist, which is long term real rates. Short nominal rates are often out of line with long real rates.
Also tbh the use of the word “fears” is a pretty easy tell that the article is meant to stir emotion rather than convey information. They’re expectations priced in to fixed income markets, not nebulous fears.
Jlocke98 | 9 hours ago
The value in gold is holding value better than cash. For an institution, the closest thing they have to cash is short term treasuries. As long as the real interest rate (IE accounting for inflation) on USD is positive, then you're losing money holding gold
LethargicDemigod | 9 hours ago
Inflationary pressures on price of metals reduce and bonds give better returns.
zxc123zxc123 | 4 hours ago
Gold and Silver are static. 1oz of gold held in ancient Greece is 1oz held by a Mongolian Khan is 1oz of gold held by you in 2026 or some future humans in 2126.
Gold doesn't make more gold. Silver doesn't make more silver. But cash invested into notes and bonds creates more cash in the form of interest.
If interest is at 0% then holding gold will be a more attractive because you're not getting anything to hold cash or dollars. If interest is at 20%/yr then many folks will leave gold for cash because bonds/notes are paying out +20% guaranteed while 1oz of gold only guarantees 1oz of gold.
Another factor is inflation. If inflation is high over the long term then folks will expect BOTH gold to go up more over the long term AND the value of dollars decline. It's a double win for gold.
But higher rates often tempers inflation. So it's a double L the other direction. You're expecting to get higher interest payments but the higher rates to temp down inflation more.
Real question is if it's enough. I say it's not since our national debt is $38T (and rising). Global national debts are also rising. Central banks are building gold stockpiles. Trump is increasing uncertainty doesn't help. I think gold will remain strong in the long run.
Also that article has the typical trigger/gaslight hot take title designed to grab attention, get clicks, and generate ad revs. Gold is fine. It's """"""""tumbled"""""""" from it's highs back to were it was in last December. So half a year ago. Ohnononono! The horror!
Look at fucking China's CSI300 index. If you held it from 2007. 20 FUCKING YEARS OF OUR LIFE. You'd still be down around -10%. And that's China's S&P500 btw. It's own top 300 companies. China's real estate market? Total collapse. China's small biz? Curb stomped by big corps or those with guanxi connections. China's big business? Curb stomped by the CCP. Corporate bonds? Defaulted as big RE blew up or crushed as rates rose. Gov bonds? BTFO by both rate hikes AND inflation. That's why the Chinese citizens are buying gold even as the government buys too.
nostrademons | 8 hours ago
Rate hikes increase the value of the currency and decrease inflation. Precious metals are usually seen as a hedge against inflation and currency devaluation. When rates go up, the demand for them goes down.
SirGlass | 7 hours ago
Gold produces zero cash flow
At some point you would opt to hold bonds baying 4% or 5% than gold paying 0%
squirrel9000 | 7 hours ago
The safe haven mentality is probably why they've held up as well as they have - I would have expected a much sharper decline after they bounced off the peak some months ago. . But the other major factor driving the run up was surplus capital trying to find somewhere to go, and rate hikes reduce the pool of surplus capital.
Sryzon | 8 hours ago
Rising rates hurt all asset prices because margin trades and call option trades become more expensive.
EterneX_II | 4 hours ago
Sounds like it hurts assets held by leveraged positions, no?
Danne660 | 6 hours ago
They said "as" this happens, not "because" this happened.
When an article about economics use the word "as" it means that they bring it up because it is a thing happening at the same time that might be relevant, in economics you rarely know what is the cause of a rise or drop so "becasue" is rarely used.
What this headline is saying is two thing.
Gold and silver is tumbling
There is rate hike fears that happening roughly at the same time, might have something to do with it.
gravescd | 3 hours ago
I'm guessing a lot of people bought gold on margin because they thought the run up would keep running.
h5666 | 8 hours ago
The market is confused. Once the market catches up it will realize that there will be no rate hikes and that the value return of placing the money on hold compared to bonds will be much better.
This is because the real return is net zero anyway if money is placed on bonds rather than gold. They need to hike much more for it to be profitable. But they cannot do this because it breaks the system
a_library_socialist | 7 hours ago
Yeah, I'm not buying that there's rate hikes high enough to deal with inflation, especially as the US debt continues to explode and needs to be rolled over.
So this is where I can buy more cheap.
BerryBummer | 6 hours ago
Don't forget about midterms, Trump sworn in Kevin Wash to prevent rate hikes, not to hike rates. Matter of fact Trump has been forcing the former FED chair to reduce rates but didn't work. There will be no rate hikes, they are just trying to scare you into selling so they can buy more.
a_library_socialist | 4 hours ago
Wash isn't the only vote - but yeah, I don't see anything more than window dressing happening. The US can't make the numbers work otherwise.
It's not 1979 - if you jack the rates, the interest on the debt means massive amounts of interest payments go out. Which means you either collapse the economy (depressing receipts, and making you find more money somewhere) - or you print it. It seems we've finally reached the point where the K economy is so severe that even marginal propensity to spend is overcome, and the interest from the debt will actually drive demand and thus inflation.
So either you don't raise rates, and get inflation . . . or you raise rates, and get stagflation.
Sweaty-Move-9975 | 8 hours ago
Yeah, real yelds are gonna go negative in USA via inflation regardless there will be max 1% raises ahead (no more because 40 trillion debt, worst case scenario) So you put 1 mil in bonds and lose 50k a year. Good deal? Hell no.
Total unemployment is aprox 12% now, witch effect gbd badly because 2/3 comes from private consumption. Remedy is money printing as it has been last 100 years now. Yeld rates effects consumption too...
h5666 | 8 hours ago
The market is confused. Once the market catches up it will realize that there will be no rate hikes and that the value return of placing the money on hold compared to bonds will be much better.
This is because the real return is net zero anyway if money is placed on bonds rather than gold. They need to hike much more for it to be profitable. But they cannot do this because it breaks the system