Most pundits are universal in viewing an interest rate increase as negative for gold. As gold is a non-yielding asset, this therefore is negative for gold - or so the narrative goes. The key however is not rising interest rates per se, but the 'real' interest rate - that is, the interest rate after taking into account the rate of inflation. Even with a series of rate rises in the USA, after taking into account inflation, 'real' rates would be negative. There are numerous recent examples of a rising rate/rising gold environment. In fact over the past five decades the rising rate/rising gold scenario is common, with the last four raising cycles accompanied by stronger gold. The most recent was when the Fed increased interest rates between 2003 and 2007 - with rates rising from 1% to over 5.5%, while gold rallied by 150% to $800/oz. Another significant period was from the 1970s, when the Federal Funds Rate rose from below 4% in 1971 to over 18% in 1980 - while gold rose by 2,400% from $35/oz to $850/oz.


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