How interest rates affect gold (it's not what you think)

Pop quiz: What’s the relationship between Gold prices and interest rates?

In 2024, even a lot of serious investment professionals are realizing that they’ve misunderstood this relationship for decades.

Here, take the quiz. See if you know:

1. When interest rates go down, gold goes up (and vice versa)

2. When interest rates go down, gold goes down (and vice versa)

The answer, as you might have guessed is, it depends.

Traditionally, (1) was true. For many decades in fact, interest rates were one of the best predictors of gold price. Why? Well, gold doesn’t pay a return. So if the alternative to gold - a bond - pays out a high rate of interest, people don’t want to hold gold.

Conversely if interest rates are low, especially if they’re lower than inflation, then you need gold just to make sure you don’t lose spending power.

But in the last month that’s all changed. Interest rates are going up and at the same time gold is soaring to new highs.

Next newsletter we’ll explain why–but suffice to say, when decades long correlations like that change, things are about to get very very interesting.