Why is gold price rising when interest rates are decreasing?

Why is gold price rising when interest rates are decreasing?

People used to say that when the interest rates are lowered because it wants to encourage growth, it will also cause people to take out their money from the bank and perhaps investing into other financial instruments to earn dividends. Some of these people may invest into gold and this will push up the demand, thus pushing up the price of the gold too. Is this true?

According to investopedia (click here to read full article), this is not entirely true. “However, there’s little evidence that gold is consistently weakened by federal funds rate hikes or Treasury yields. Despite some negative correlation in the 2000s, there are far too many instances of gold and interest rates rising together to say that high interest rates cause gold prices to fall.”

Article in nst.com.my. Gold prices eased on Monday and hovered around key US$2,500 level, as traders locked in profits following bullion’s climb to an all-time peak in the previous session on expectations of a U.S. interest rate cut next month.

Spot gold was down 0.2 per cent at US$2,502.78 per ounce, as of 0317 GMT, and U.S. gold futures edged 0.2 per cent higher to US$2,541.80.

Enthusiasm over a likely interest rate cut by the U.S. Federal Reserve in September propelled bullion to an all-time high of US$2,509.65 on Friday. This coupled with increased geopolitical tensions and robust central bank-buying have sent bullion over 20 per cent higher so far this year. Do read here for the full article: Article in nst.com.my.

When the whole world is positive, demand for many things will go up

It’s a sentiment and may not reflect the real situation on the ground. In other words, when everyone feels negative, the prices would still go down because sellers may feel negative and will be willing to sell with a heavy discount for uncertainty. This is where we could get potential opportunities. Meanwhile, when the times are good, people may be willing to go out, shop and eat till they drop and inflation will start to rejoin the group before the next crisis may come along.

Do you buy gold now? Nothing wrong or no harm. Do you know when is gold prices at its lowest point? I don’t know. Haha. Please study more before going into any investment yeah.

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