Boca Raton Gold Dealer William Youngerman

If you are considering adding gold to your investment portfolio, you need to understand the relationship between this precious metal and interest rates. The price of gold typically has an inverse relationship to interest rates. While this is not guaranteed, gold prices typically rise when interest rates fall and decrease when interest rates go up. Rising rates of interest increase the attractiveness of stocks, bonds, and other types of investments to investors. By contrast, when the interest rates are lower, these types of investments are less attractive to investors, leading them to turn to gold as a viable investment choice. With lower interest rates and more demand for gold, the price of gold tends to go up. For this reason, investors view gold as a way to store their wealth when difficult economic times arise. Here is some more information about the relationship between gold and interest rates from Boca Raton gold dealer William Youngerman.

Relationship of Gold to Rising Interest Rates

When consumers have more confidence in the economy, the economy and businesses expand. When businesses expand and consumers have more disposable income, people tend to increase their borrowing. In turn, increased borrowing can lead to rising interest rates. Financial institutions and banks increase the cost of borrowing because they can then realize greater returns from the money they loan.

In prosperous economic times, fewer investors consider safe havens for their investments. Higher interest rates also boost the domestic currency, which can then cause gold prices to go down in the short term. In some cases, the central bank will use interest rate increases to try to combat rising inflation. When prices rise too quickly, interest rate increases are implemented by the central bank to try to get people to reduce spending and save money so that inflation might be halted.

Relationship of Gold to Falling Interest Rates

When consumers have less confidence in the economy, growth stagnates and interest rates either fall or remain at the base rate. A slowing economy normally impacts wage growth, employment, and the cost of living while also harming the value of the domestic currency. When economic conditions are more difficult, investors tend to switch their investment strategies and invest in gold so that they can protect their wealth. In this situation, gold prices tend to rise because of trading in gold futures. Under low rates of interest, other types of investments won’t allow investors to earn additional income, which makes investing in gold more appealing.

Effect on Gold of Federal Reserve Rate Hikes

The impact of interest rates on the economy and the price of gold varies from nation to nation. In the U.S., interest rates have more of an influence than in many countries because gold is primarily traded in U.S. dollars. When the Federal Reserve raises interest rates, the action can profoundly affect gold prices. Rate hikes typically cause gold prices to fall, while Fed rate decreases help to maintain high gold prices.

Learn More About Investing in Gold Coins in Boca Raton

If you are considering investing in gold coins or bullion, you should talk to the professionals at William Youngerman, Inc. We have dealt in gold, jewelry, coins, bullion, and rare currencies since 1967 and are experienced and trusted gold dealers in Boca Raton, Florida. Contact us today at 800-327-5010 or 561-368-7707.