The price of gold has always correlated with the major banks’ interest rates. However, that’s not exactly, as it may seem at the first sight. One requires considering the Fed’s rates to get a good idea of it. Well, theoretically, tightening in the financial world suggests increased profits on stock instruments and makes the capital escape the gold market. Moreover, a surge in interest rates provokes strengthening of the greenback, thus causing a dip in the price of the number one precious metal, because it’s the currency in which gold is traditionally sold.
Nevertheless, the historical data tells us rather an opposite thing. For instance, in the period of 1970-1980 the Fed raised its rate to 20% from 4%. At that time, gold drastically leapt to $675 from $35 per ounce. Let’s have a look at another example. Right before the period of financial meltdown 2003-2006, the Fed raised its interest rate to 5.5% from 1%. Gold quotes followed this by soaring to $650 from $355.
Now the major banks keep purchasing record amounts of this precious metal, thus unwinding the gold rush in financial markets. Considering that the diverging supply and demand on the market along with a relatively moderate size of global markets of physical silver and gold, we see evident signs of the approaching gold deficit.