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Alasdair Macleod: Gold and interest rates
By Alasdair Macleod
GoldMoney, St. Helier, Jersey, Channel Islands
Thursday, April 7, 2016
It is commonly assumed that the gold price and interest rates move in opposite directions. In other words, a tendency towards higher interest rates is accompanied by a lower gold price.
Like all assumptions about prices, sometimes it is true and sometimes not.
The market today is all about synthetic gold, gold that is referred to but rarely delivered. The current relationship is therefore one of relative interest rates, because positions in synthetic gold, in the form of futures and forwards, are financed from wholesale money markets. This is why a rumor that interest rates might rise sooner than expected, if it is reflected in forward interbank rates, leads to a fall in the gold price.
To the extent that this happens, the gold price has been captured by the modern banking system, but it was not always so. ...
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