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In
the big picture we think the gold and silver bull market has just started to
warm up. It is not that we believe the ten year bull market has not
been underway for a significant amount of time, but rather we believe the
majority of the price appreciation is ahead and not behind us.
There
is a common belief that rising interest rates are negative for the price of
gold. Where do these crazy ideas come from? If that is the case
then gold investors should fear that the bull market is nearly over as
interest rates are near zero and when they eventually do rise the bull market
will be threatened. Contrary to this popular opinion we think that
rising interest rates are a great sign for gold! With rates near record
lows it means that there is a lot of “fuel” for the gold price
when interest rates do eventually rise. Currently there is a nice
big, fat bond market loaded with capital ready to pour out of bonds and into
the commodities market. To prove our point, consider
the following historical examples:
 
In
the above charts notice the following:
1)
Interest rates and gold generally move in the same
direction. We believe that rising interest rates are a Bullish and NOT
a Bearish sign for Gold.
2)
In many instances, interest rates tended to “peak”
after gold has already peaked. This would not support the theory that
rising rates end gold advances. If rising interest rates were ending
the gold advances then one would expect interest rates to peak first and then
cause gold to peak second.
We
have found the following argument is used to support the idea that rising
interest rates are negative for gold: ‘In the 1970’s
Fed Chairman Paul Volker raised interest rates ending the gold bull market.’
This appears to be the only argument that has created the apparent myth that
rising interest rates are bad for the price of gold. Instead we would
argue that when interest rates are rising, bond prices are falling as capital
flows out of bonds and into gold. We would argue that around the early
1980’s was the end of the bear market in bonds which was around the
same time the bull market was ending in commodities. To support our
theory, we have provided the above historical examples.
With
interest rates at near all time lows we think that there is a lot of capital
in the bond markets that is ready to pour into the commodity markets when
rates rise again.
The
following chart compares the price appreciation of the price of gold compared
to historical price advances.
Like
all bull markets the majority of the price appreciation will come towards the
end of the advance when the ‘manic / parabolic’ phase hits.
We feel this explosive ending is a long way off from today and there will be
a lot of ups and downs along the way. We are expecting there will be
more great buying opportunities and we plan to add to positions at lower risk
opportunities.
Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach is
the President and Editor or www.investmentscore.com,
an online publication designed to show investors how to make profitable entry
and exit trading decisions in high growth potential investments. Investmentscore
uses a unique scoring system as a visual guide to assist investors in making
lower risk / higher reward trades.
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