Negative Real Interest Rates Argue For New Highs in Gold

One of the variables that affects the gold price is negative real interest rates—where inflation rates are higher than nominal interest rates—which means savers who park their cash at the bank are seeing their purchasing power eroded. We are experiencing these now, and that argues for new gold highs. While the US dollar’s recent strength has kept gold in check, that will change if the euro stabilizes. A turning point is near; gold is already rallying relative to global currencies.

We are also entering the seasonal strong period for gold; it typically bottoms in August and then rallies into the end of the year due to seasonal gold buying by India for the upcoming wedding season. Moreover, the Chinese, major buyers of gold, have seen it decline roughly 20% from last year to this year’s low, and are likely buyers at these levels. In addition, gold and silver are oversold, indicating a great buying opportunity.

If the euro can stabilizes the US dollar weakens heading into the seasonal strong period for precious metals, expect gold and silver to rise. Given their oversold condition and cheap valuations, they present an attractive buying opportunity for investors. With all the rhetoric coming from ECB head Mario Draghi, and the upcoming ECB meeting on August 2, we may soon know whether or not the euro will hold. If it breaks, expect another round of selling in the gold sector, but if the ECB does begin to flood the system there could be a dramatic move in metals.

To read Chris Puplava article: Negative Real Interest Rates Argue For New Highs in Gold

Tagged as: ECB, European Central Bank, Gold as an investment, India, Mario Draghi, Nominal interest rate, Precious metal, Real interest rate