Submitted by Mark O’Byrne – GoldCore
The primary focus this week is again on the “all powerful” Fed. If the Fed leans toward a rate hike in December, gold could come under pressure again in the short term. However, if it leans toward raising rates next year, then gold would be expected to eke out further gains.
Bank of England – Interest Rates – 1694 to Today
Most physical buyers will ignore the noise and focus on the fact that the Fed’s monetary policies, along with the Bank of England, the ECB and most central banks in the world, remains extremely accommodative.
The perception and narrative is that a rise in rates, even by a very marginal 25 basis points will be negative for gold. This may be true in the short term as perception, even misguided perception, can drive markets in the short term.
However, rising interest rates per se are not negative for gold. What is negative is positive real interest rates and yields above the rate of inflation. This is unlikely to be seen any time soon.
Gold will also be vulnerable towards the end of an interest rate tightening cycle as was the case in January 1980. Today, central banks including the Fed are having difficulty raising interest rates in even a small nominal way.
Given the massive global debt bubble of today, it will likely be impossible for central banks to increase interest rates in any meaningful way. We are not going to see an interest rate tightening cycle akin to that which snuffed out gold’s bull market in the 1970s.
Unless, central banks lose control of the bond markets and a new breed of bond market vigilante enforces monetary discipline and pushes bond yields higher in the coming years.
Gold should be supported by data which suggests that economic growth braked sharply in the third quarter in the U.S. and that global demand for physical bullion remains very robust – particularly in India, China and Germany.
A gauge of U.S. business investment plans fell for a second straight month in September. Core capital goods orders fell 0.3 percent in September, August core capital goods were revised sharply down and durable goods orders dropped 1.2 percent.