Choosing Between Gold and Bitcoin. Bitcoin News Newsbtc. The Federal Reserve of the United States (Fed) have announced an increase of interest rates by 0.5% on December 17 for the first time since the financial crisis, with hopes to achieve a high point for the United States economy in 2016.
The rising interest rates have already begun to affect emerging markets and the value of precious metals including gold and silver.
According to the Commodity Futures Price Quotes for Gold (COMEX), the price of gold sustained its volatile trend over the past week, plummeting to US$1,060 per ounce, reaching a new six year low since 2009.
Historically, a negative correlation between the price of gold and interest rate hikes was never established, despite the common belief among investors and traders. In fact, some research papers including Martin Feldstein’s National Bureau of Economic Research paper entitled “ The Effect of Inflation on the Prices of Land and Gold ” show that inflation has actually increased the value of gold overtime.
“In contrast to the traditional theoretical conclusion that relative prices are unaffected by the rate of inflation, the current analysis shows that, because of unindexed taxes on capital income, a higher expected rate of inflation raises the prices of land and gold relative to the general price level of produced goods.”
According to the U.S. Real Interest Rate and Gold Price chart provided by the Federal Reserve, the increase in rate since 2004 has caused the downfall of the price of gold.
However, established financial institutions and banks including JPMorgan, HSBC and Goldman Sachs believe that the rising interest rates will continue to play a vital role in the determination of gold’s value.
“We think we are in a structural bear market, not only in gold, but across the commodity complex, as the individual commodity stories are […]
