How Do High Interest Rates Affect Gold?

How Do High Interest Rates Affect Gold?  

Interest rates measure how much a lender will receive after money is borrowed. Rates are often tied to inflation, which is when the power of every U.S. dollar lent out decreases quickly or over a period of time.

Several factors can affect interest rates, such as:

  • Supply and demand of money in the economy.
  • International events.
  • Federal Governmental actions.

As interest rates rise, the price of gold is affected. Continue reading for more information on investing in gold during a time of high-interest rates.

What Happens to Gold Prices During Inflation?

While inflation does not directly correlate with gold prices, they are related — much like all parts of the market. Some economists theorize that the cost of gold is more related to fear. When economic crises occur, investors tend to flock to reliable investments like gold, driving up the price for a time.

In other words, in these times of low economic gain, people are buying more gold, driving the price when many people cannot buy it. There aren’t many fundamentals to the cost of gold — if more people buy it, the value will rise, whatever the current condition of the economy.

Other Factors That Can Affect Gold

Interest isn’t the only thing that affects the price of gold. A few others include:

  • Supply and demand: The supply of gold never decreases — there is always more being mined. With more gold coming into the market, people may expect the price to plummet, but it hasn’t. Instead, the need for jewelry and investments continues to rise, keeping gold continually in style.
  • Gold production: Supplies of gold are often driven by mining production. Changes in gold mining production can cause the price of gold to fluctuate — especially if more money is going into mining it.
  • US dollar value: Gold prices tend to move in the opposite direction as the U.S. dollar because gold is dollar-denominated.

What Happens to Silver When Interest Rates Rise?

Silver, like gold, is considered a hedge against inflation. That means that as inflation begins to erode the value of the dollar, silver can protect against financial losses.

The price of silver will almost always follow gold. As interest rates rise, silver and other precious metals move in the opposite direction, like the value of the dollar. In these times, it’s more profitable to invest in precious metals that accrue interest while interest is high.

Contact Accuplan Benefits Services Today

Accuplan has options to invest retirement funds. We have been committed to offering our services for investment successes for over 25 years. From precious metals to real estate, our team members are experts on self-directed IRA rules, laws and best practices. We value you as a client and keep you as the priority in every goal or need.

Now is a better time to invest in precious metals than ever, as prices are low and interest is high. For more information on investing, set up an account today with Accuplan Benefits Services.

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