How is gold reacting to rising interest rates?

by Tim Straiton
Saturday 17th September 2022

Currently, the technical outlook for gold is bearish. Gold closed the week at 1674 and trades well below the falling 50 day moving average of 1736. It closed the week under the Fibonacci 38.2% retracement level based on the 1045 - 2069 price range seen between December 2015 and March 2022. This puts focus on the 1557 level which is the Fibonacci 50% retracement level based on the same range.

The general explanation for the fall in gold prices is related to rising interest rates and the belief that inflation will fall. Such propoganda is of course intended to fool the average investor into thinking that currencies will hold their purchasing power. History tells us that nothing could be further from the truth! The strategy of manipulating interest rates lower over the past 40 years is now taking its toll and suggests that central banks have lost the plot and remain trapped in a desperate situation.

So how should an investor react to the current bear trend in Gold?

Investments in stocks and bonds in the current interest rate environment is not likely to bear fruits in foreseeable future. The Consumer Price Index in December 2021 was put at 7%, the highest rate in almost 40 years. When one takes into the account that we have negative real interest rates and the fact that G7 nations continue to print money on a vast scale, there is only one direction that gold can go in the long term and that is up.

It would make sense to take advantage of the current bear phase to engage in scale down buying.



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