interest rates go down, gold goes.....

[Cornishfarmer]

................up or down.     didnt start pms until the rates were put to 0.5%.     if they cut rates to 0.25% or lower. what happens to gold does it go up or down, will it strengthen or weaken the pound 

[Clens92]

At a glance, if interest rates go down, the incentive to hold gold increases.

Gold does not pay interest - so why would you put money in gold when you could earn 5% interest with money in the bank?  But when you're earning 0.25% on your savings in the bank, holding gold becomes a lot more attractive.

Generally, a strong Pound is good for imports (we can buy things more cheaply from abroad) but bad for exports (foreign markets have to pay more for our goods and services).  A weak Pound generally sees increase demand from overseas, so our exports increase.

 

* This is taking gold and interest rates in isolation; in reality, we would have to look at inflation and the general global economic outlook to see whether gold was a good buy at that time.

[HawkHybrid]

gold is priced in dollars. rate changes for the £ should

have no fundamental effect on gold. there are indirect

influence if £ savings decide to move into gold in volume

or if lower uk rates lowers the risk of uk debt defaults.

I'm guessing a mild influence down due to risk on with

debt and less risk of default may be more dominant than

the resulting slightly weaker £.

 

HH

[KDave]

In theory it should be rates up - gold down. Rates down - gold up. 

In reality, by coincidence perhaps, the last time the fed raised rates we saw an incredible advance of gold and silver prices and the break of a 5 year down trend. So by that logic, cutting rates should see gold prices fall to levels not seen since the millennium.

Personally I think while we have more printing (QE), lower rates (Risk of saving in currency not rewarded), and possibly more lending (though I am not sure who will take on more debt in this uncertain enviroment, particularity in the UK, the ignorant and the brave perhaps?) means a good few more worried people will turn to gold and silver as their safe haven asset but honestly anything but cash should do well in this enviroment. Who knows.   

[HelpingHands]

We might find out tomorrow.

https://www.theguardian.com/business/2016/jul/13/bank-england-cut-interest-rates-halt-uk-recession-mark-carney-brexit

[HawkHybrid]

Quote

Under pressure to stem further falls in sterling, Mark Carney, the governor, is expected by financial markets to halve the 0.5% base rate on Thursday and reignite the Bank’s quantitative easing programme.

 

are they implying that cutting rates strengthens the £ ?

 

by their actions/logic, zimbabwe should reduce rates to -100%

to fix the hyper inflated zimbabwean dollar 

 

HH

[HelpingHands]

Rates unchanged.........for now.   Pound Up.

[Bumble]

The relationship between interest rate and PM prices is more complex. Higher rates increase the opportunity cost of owning gold, so there is a negative effect. But higher rates also make businesses less profitable, because so many are heavily indebted. Higher rates also make bonds less attractive. Consequently stock and bond prices fall and investors rotate out of these and into gold. Arguably the 0.25% rate rise from the Fed in December 2015 was what kicked off the rise in gold prices that started at that time: in the space of a few weeks the S&P fell from 2100 to 1850 and investors looked elsewhere and realised gold and gold miners were hugely underpriced.

This means that in the current environment gold is in a goldilocks situation. Fallling rates, especially if they go to negative nominal values, will make gold attractive because it is cheaper than cash, while higher rates will spook the stock and bond markets and create safe haven demand. The only reason not to own gold is if you believe the economies of the developed world are growing and returning to prosperity.