While increasing interest rates can often result in macroeconomic headwinds for equity valuations, Gold, on the other hand, has a special connection with interest rates. So, what is their relationship?
According to Royal Mint, many investors and market analysts believe that Gold and interest rates generally enclose a low-to-negative correlation. This suggests that the fluctuation of how stocks are faring can largely affect the price of Gold.
Why? The rise in interest rates can indicate a healthy and thriving economy. Therefore, government bonds, shares and other investments seem to be more attractive to investors and give them more wealth assurance. Another reason behind this is that higher interest rates can imply an increase in opportunity costs of holding non-interest-bearing assets, such as Gold, causing them to become less appealing. Contrarily, a drop in interest rates may suggest many economical related concerns which drive investors towards more ‘safe-haven’ type assets.
Traditionally, Gold is the precious metal that has been proven as a safe haven and a store of wealth for investors who want to hedge their bets in times of financial difficulty. Because of its ubiquitous acceptance, Gold becomes in demand when the interest rate fluctuates. If you would like to learn more about Gold and other precious metals, get in touch with one of our specialists today.
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