interest rates plus Gold/ Silver

[Pipers]

Question, When the BOE raises interest rates what do you guys think will happen to the price of gold and silver? 

 

[TheByzantine]

Gold would normally go down in pounds. But hard to say as the pound may drop as well...

[KDave]

Its a tough one, because we must factor in what sterling does, what the dollar does and then what gold does all against each other. Gold rising in USD might not be so bad if GBP continues its uptrend against the dollar, exactly as we have seen recently. Gold falling in USD while GBP strengthens against the dollar will see some cheap gold, I hope that is what happens. £178 sovereigns and £731 for an ounce delivered again sounds good to me 

I am looking myself at what the currency charts tell us the dollar is doing against the rest. Is GBP's apparent uptrend from the lows against the dollar going to last. Is the trend in gold going to continue higher, or now that we have touched $1360 will it have another reversal like we saw in late 2017? Some people think so, silver is another I have seen some very bearish TA for, which would be a bad indicator for gold (good for stackers).  

Then we have the macro picture which is pretty dam grim when you look at it. Then throw in some interest rate rises.

We have huge national debt to GDP globally, the UK is particularly bad, we have record personal borrowing which again in the UK is particularly bad, and we have high capital mortgages many of which are either speculative or leveraged rent seeking activity, which again in the UK this is particularly bad. Even historically small interest rate rises will make debt burdens very expensive and potentially unbearable due to the capital involved.

The other question is, how likely is it that Carnage will actually stick to the plan? Recent history has shown central bankers to say one thing and then do another. Mostly not raising interest rates.

[vand]

It's a myth that PMs do poorly when interest rates rise.

Why are interest rates rising? Because inflation is rising. And PMs are a historical hedge against inflation.

[Pipers]

I thought so to, though I am getting mixed signals.  The best I can see is the 1970's when rising inflation caused Gold to rise, though Gold also made big gains in the 2000's - 2012 though inflation was low.  In between we had lows in Gold and high inflation and midrange inflation we had market crises, so I am not to sure if small moves make differences,, maybe it's more to do with markets or total destabilising! 

One thing I am sure of is the following,. The UK is in a sh-t hole position in its finances and all I can see is sterling being devalued in the long run, to me the best way I can see ATM the best protection against this is Gold / silver. 

 

[Martlet]

In the global economy the price of gold is reflective of many factors.  The interest rate in UK is a small input.  It should strengthen the £ which will have a larger affect on local gold prices.

[vand]

Remember what precious metals are first and foremost: a safehaven asset, distinct from stocks which are risk assets, and bonds, which are somewhere in between. PMs are the asset class that correlate most negatively with stocks. Don't get too hung up on the immediate direction of interest rates; the tail does not wag the dog. Stocks do most well and PMs do poorly in long periods of economic expansion, and the opposite is true when there is economic chaos. That does NOT mean every time stocks go up, gold goes down or vice versa, but just that one tends to underperform the other at different points in the business cycle.  Because of this, having some PMs in your portfolio is sometimes recommended as a good diversifier to smooth out the bumps and provide better risk-adjusted returns,.

 

 

[KDave]

This reflects other work I have seen on silver. It is not certain yet but the potential for lower precious metals is looking good. If this comes to pass and GBP continues its up trend vs USD things will be looking good for UK stackers. 

[vand]

1 hour ago, KDave said:

This reflects other work I have seen on silver. It is not certain yet but the potential for lower precious metals is looking good. If this comes to pass and GBP continues its up trend vs USD things will be looking good for UK stackers. 

 

This is a good question and one that we should be asking. However, I think the idea of silver leading gold  is a misnomer. The tail doesn't wag the dog. Gold leads, and silver lags and most of the time underperforms. If you are bearish on one you must be bearish on the other, and vice versa.

So as long as the technical picture for gold remains bullish then I remain a PM bull, even if silver is failing to confirm (of course it would be better for confirmation). 

An extended price drop doesn't change my core accumulation strategy, but it does change my trading strategy and I would not be trying to trade it on the long side until the technicals look better.  Bear markets should be welcomed as a change to buy more cheaply, whether its PMs, stocks or anything else. I am an accumulator of PMs at anything above Dow/Gold of 10, a holder betwen 5-10, and a net seller below 5.

 

[Pipers]

DO people i the wider population consider silver to be a commodity or PM. I ask this because we may see widening Gold/silver ratio not falling ratio eg upto 100-1 as industrial demand falls for silver as tariffs are put in place because the demand for gold increases.  

I also think silver will not lead Gold as the market in silver is small in comparison, IMO silvers price is set more by industrial demand and kept down because of that, maybe i am missing something.

   

[KDave]

The GSR has been 'expanding' for lack of a better word with each peak and trough over the decades, not sure why this is, but I would not be surprised to see 100-1 at some point. Perhaps we will see it in this cycle before we finally get our run up.

My thoughts recently is that silver is the traders FOMO play, they see gold rise, then the fine chaps who missed it jump on silver while it is still low, in anticipation of following gold up, and the prediction becomes reality. Expectations probably make more of the market than we think. This nature to gold and the small size of market might explain why the moves are so volatile in the metal, leverage is probably to blame as well.

The two metals have different properties in terms of what the market wants from them. Silver being an industrial metal first and foremost, speculative second, and gold being something else. 

[Pipers]

Not sure where to put this, i have read this, i believe it is a very good article and should be read by all on this forum.

Goldmoney

https://www.goldmoney.com/research/goldmoney-insights/currency-exchange-value-dynamics

 

[KDave]