The relationship between interest rates and the exchange price of gold
Gold is one of the most popular precious metals in the world. It is used as an investment, decoration and in industry.
But in order to earn the maximum, you should buy the precious metal at the most favorable moments, when the price of gold is at its minimum.
In order to determine this minimum and whether the price of the metal will rise or fall, you need to know the factors influencing the price.
One of these factors is interest rates or, as they are also called, discount rates of national banks . In this case, the greatest influence is exerted by the interest rate on the US dollar, the size of which is set by such a body as the Federal Reserve System of the United States
How do interest rates affect the price of gold?
Looking at the charts, we can say that there is a negative correlation between gold prices and interest rates.
Rising interest rates usually lead to lower gold prices. This is due to the fact that gold is an alternative investment instrument that acts as a protective asset during periods of volatility, uncertainty and high inflation.
When interest rates rise, investors begin to look for more profitable assets, such as bonds or bank deposits. The fall in demand leads to a decrease in the price of the precious metal.
Lower interest rates cause the price of gold to rise. In this situation, gold becomes more attractive to investors as a protective asset. Since low interest rates reduce the yield on bonds and deposits.
In addition, a large amount of inexpensive money stimulates an increase in inflation, and precious metal has always been considered the best protection against inflation.
This situation leads to an increase in demand for gold, which becomes a more attractive option for investors seeking protection against inflation and other risks.
In addition, interest rates can also indirectly affect the price of gold. For example, rising interest rates cause the US dollar to rise. This could reduce the demand for gold in other currencies, causing its price to decline.
Here are some specific examples of how interest rates have affected the price of gold:
In early 2022, the US Federal Reserve began raising interest rates in response to high inflation. This led to a decline in the price of gold from $2,070 per ounce in January to $1,600 per ounce in September.
In 2008, during the financial crisis, the US Federal Reserve cut interest rates to record lows. This led to an increase in the price of gold from $700 per ounce in September to $1,900 per ounce in August 2011.
In 1980, the US Federal Reserve raised interest rates to 20% in response to high inflation. This led to a decline in the price of gold from $850 per ounce in January to $375 per ounce in December.
How will interest rates affect the price of gold in the future?
In general, interest rates have a significant impact on the price of gold. When forecasting the price of gold, it is necessary to take into account the current level of interest rates and possible changes in them in the future.
Predicting how interest rates will affect the price of gold in the future is not easy. However, given the current situation in financial markets, it can be assumed that rising interest rates will put pressure on the price of gold.
This is because inflation remains high and central banks in the US and other countries continue to raise interest rates in response to it.
However, if inflation begins to decline, this could lead to lower interest rates. In this case, the price of gold may begin to rise.
Thus, interest rates are an important factor to consider when predicting the price of gold.
It is also necessary to take into account other factors such as inflation, geopolitical situation and economic policy. Sometimes an unstable economic and geopolitical situation can have an even greater impact on the price of gold than changes in interest rates.