Discussion in 'Markets & Economies' started by aleks, Jul 31, 2019.
A spectre is haunting the developed world — the spectre of japanification.
Can someone please explain to a layman how interest rate cuts affects the gold price. Wouldn't cheaper money push up investment? Wouldn't negative economic outcomes lead to a rush on hard currency?
I would have thought the opposite was true.
If there is more money , easy money at that then you have the ability to get some of that cash and take RISKS.
Risky assets can lead to greater returns.
I mean if i borrow a 100k im not going to stick it in gold that may return a few % a year if i get lucky.
I am more likely to buy property in an area and speculate on far riskier assets with greater returns , and if it all turns to shit file for bankruptcy and start again when the bankruptcy terms are complete.
Edit: Just keep in mind that interest rates do not really trickle down to Joe and Jane in the street they are more for bank to bank lending and bonds, but they does mean banks will often have more lenient terms for loaning cash.
Today’s shift in gold price and stock market reaction is more about sentiment. The market was disappointed that the Fed (Powell) said.
Fed Chairman Jerome Powell says the Fed’s quarter-point rate cut was a “midcycle adjustment,” meaning it’s not a promise of more easing.
The market was anticipating a number of rate cuts.
Short term gold price fluctuations are sentiment related.
Makes sense that cheaper money drives investment in riskier assets.
I guess interest rates in and of itself doesn't really do anything, though historically lower rates encouraged people/companies to borrow more and thus increasing credit in the system. The issue today is rates are already very low and being so late in the boom/bust cycle people/companies don't have the appetite to borrow more. The end result is credit contraction, that's why central banks are freaking out. Their go to tool (interest rates) no longer works at so low rates, so the next step is massive QE. QE will increase credit and then gold will start moving up fast, but until then expect everything to move down. For the time being cash is king, especially the USD.
It's already collapsing under it's own weight and theres no where to go but down.
First thing you need to do if you want to get out of a hole is to stop digging.
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