By Adam Hamilton:
Gold has slid during this past week on mounting fears of interest-rate hikes. Between the latest FOMC meeting’s minutes and the Fed’s annual Jackson Hole Economic Policy Symposium, American futures speculators’ rising-rate phobias have been whipped into a fever pitch. They worry gold will be crushed when the Fed eventually starts normalizing rates. But history shatters this fallacy that rising rates are gold’s nemesis.
Today there is a near-universal belief among futures traders that rising interest rates are very bearish for gold. The underlying logic is simple. When interest rates rise, so do yields on bonds and cash in the form of money-market funds. This makes bonds and cash relatively more attractive to investors than gold, which yields nothing. Therefore they jettison their gold holdings to migrate capital back into bonds and cash.
While this thesis may seem sound on the surface, it should be tested rather than being blindly
