Dear Ziilllaatraders,
When interest rates rise, it generally leads to a decline in the price of gold. There are a few key reasons for this:
Opportunity cost: Gold is a non-yielding asset, meaning it does not generate any income or interest on its own. When interest rates go up, investors can earn higher returns by allocating their funds to interest-bearing assets such as bonds, savings accounts, or other investments. This makes gold relatively less attractive compared to these alternatives, increasing the opportunity cost of holding gold.
Strengthening currency: Rising interest rates tend to strengthen the currency of the country where rates are increasing. A stronger currency makes gold more expensive for holders of other currencies, reducing international demand for the precious metal and putting downward pressure on its price.
Inflation expectations: Higher interest rates are often implemented by central banks to combat inflation. If interest rates rise due to inflationary concerns, it signals that the purchasing power of the currency is expected to improve. This can dampen the appeal of gold as a hedge against inflation, causing its price to decline.
It's important to note that while these factors generally contribute to a decline in gold prices when interest rates rise, the relationship between gold and interest rates can be influenced by various other factors, such as geopolitical events, market sentiment, and overall economic conditions.
Greetings,
Ziilllaatrades
When interest rates rise, it generally leads to a decline in the price of gold. There are a few key reasons for this:
Opportunity cost: Gold is a non-yielding asset, meaning it does not generate any income or interest on its own. When interest rates go up, investors can earn higher returns by allocating their funds to interest-bearing assets such as bonds, savings accounts, or other investments. This makes gold relatively less attractive compared to these alternatives, increasing the opportunity cost of holding gold.
Strengthening currency: Rising interest rates tend to strengthen the currency of the country where rates are increasing. A stronger currency makes gold more expensive for holders of other currencies, reducing international demand for the precious metal and putting downward pressure on its price.
Inflation expectations: Higher interest rates are often implemented by central banks to combat inflation. If interest rates rise due to inflationary concerns, it signals that the purchasing power of the currency is expected to improve. This can dampen the appeal of gold as a hedge against inflation, causing its price to decline.
It's important to note that while these factors generally contribute to a decline in gold prices when interest rates rise, the relationship between gold and interest rates can be influenced by various other factors, such as geopolitical events, market sentiment, and overall economic conditions.
Greetings,
Ziilllaatrades
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.