Equity Analyst Jobs

It’s almost a cliche in the investment world: Rising interest rates and higher gold prices aren’t supposed to get along. The reasons are seemingly clear: As interest rates head higher, the widespread perception is that gold—which doesn’t pay any interest—can’t go along for the ride.

And because it can’t go along for the ride—can’t generate those higher payouts—investors are inclined to look elsewhere. That’s what is supposed to happen, anyway. But the funny thing here, in later 2007, is that interest rates are up—the latest cut is the first since July of 2003, in fact—but gold’s been up, too, and has been since 2001.

So much for investment cliches.

It’s Not the First Time, Either

This cliche-busting phenomenon of rising interest rates and rising gold has happened before, of course.
It was back in the 1970s. You remember those days of “oil shock,” Jimmy Carter’s smarmy smile, Iran and Afghanistan? Well, after the overthrow of the Shah in late ’78. Iranian oil, formerly a safe bet for the US, took a drastic production cut from 5.2 million barrels in ’78 to just 1.7 million barrels in ’80.

Oil prices in the US soon rose 30 percent to $9 a barrel in ’78. Inflation followed right on its heels, jumping to a hefty 9 percent. Trying to catch up, the prime rate climbed as well, hitting nearly 12 percent—at the exact same time gold crossed the $200/oz barrier for the first time ever.

Just a year later, oil spiraled higher to $12.64 for another 40 percent jump. And everything else, not unexpectedly, followed: Inflation rose to 11 percent, interest rates hit a jaw-dropping 15.25 by year’s end, and gold crossed first the $300, then the $400 barrier, hitting $455 on its way to averaging $306/oz for the year.

But That Just Set The Stage

For The Thrilling 1980 Climax

In 1980, oil prices reached $21 a barrel due in large part to Iran invading Iraq. Accordingly, that spurred inflation to an “official” 13.58 percent. The prime answered with an almost loan shark 20 percent on April 2nd. And gold? It hovered in the $500 vicinity on that same April 2nd day, after setting the current $850/oz record on January 21st (thereby smashing the $500, $600, $700 and $800 barriers in one fell swoop).

So both gold and interest rates set nearly simultaneous records.

Then came the late 80s.

In ’87 and ’88, interest rates responded to higher oil and inflation by rising from 7.75 to 10.5 percent. Meanwhile gold followed suit, jumping $100 (from $390 to $499).

Interesting picture. Are we now seeing that same picture today?

What’s “Supposed” to Happen Isn’t Happening

What’s supposed to happen today with the price of gold has to do with the difference between interest rates and inflation.

When interest rates are lower than inflation, gold is supposed to be considered a good investment. When rates are significantly higher than inflation, though, borrowing is considered “expensive”— if the rate were 9 percent and inflation were 3.5 percent, for example, the resulting 5.5 yield would be regarded as “high.” Conventional wisdom says it’s during just such times that the price of gold is supposed to go south.

Yet with the prime currently at 8.25 percent and the “core” inflation rate (which is, ridiculously enough, minus the everyday essentials of energy and food) at under a measly 2 percent annual pace, the resulting yield should be high enough to put gold back on its heels. It hasn’t. While gold has been a bit range-bound of late, it shows no signs of heading south.

In fact, as mentioned earlier, it’s been up strongly, impressively, over six years now.

So…either this “rising interest rate theory of avoiding gold” is just a bunch of hooey…or, as in the late 70s, inflation really is a lot higher than its officially being pegged.

When Inflation, Interest Rates AND

Gold Go Up At the Same Time

According to the Federal Reserve Bank of Dallas, “nine of the ten post-World-War-II recessions were preceded by sharply rising oil prices.” And that’s despite any tactics the Fed did or didn’t employ.

Higher interest rates are certainly no panacea. There can be so much weakness inherent in the economy, so much “oil shock,” so much debt, so much doubt, that higher rates simply fail to gain the expected traction (unless it’s to demolish the real estate market).

When the majority of people notice the inability of higher rates to calm the economy, when they witness raging inflation in their everyday purchases —something that isn’t, as in the 70s, reflected by “official government statistics”—then their attention can be drawn to other means of financial security. Like precious metals.
And that can be what’s accounted for gold’s 6-year bull run.

Hopefully, we won’t follow that startling post-World War track record and suffer a serious recession just up ahead. But whether we do or not, your job is to protect your family, yourself and your hard-earned assets in the best way you know how.

Now I realize that rates are on the verge of being cut to save the floundering housing industry. But, whether the interest rates are rising or falling, it’s not hard to see that the kind of financial security most of us seek comes in a gleaming, beautiful form.

Last week, announced the Bank of England's Monetary Policy Committee (MPC) that interest rates were to remain at 5.5 percent.

As a result, the user chooses them to secure and Home Loans - in addition to existing borrowers are expected - will find their monthly repayment costs remain in line.

After the decision to increase the interest in the quarter of a percent last month, the MPC has been reported to have carried out the base rate, so that the Committee have more time toJudge the full effect of increases in May and January.

But despite the decision, secured loan borrowers are warned that they have no time for "complacency" with future growth predicted by various industry experts estimated.

Director General of the Council of Mortgage Lenders, Michael Coogan said that as millions of homeowners have until the end of their fixed-rate deals come in the next 18 months they could see their monthly mortgage costs rise by up to 1.5 percent.

Hesaid: "More than two million borrowers in the next year and a half at the end of fixed-rate deals will be reached and the prospect of higher mortgage payments face."

Mr Coogan added that consumers could until the end of the next two years, fixed-rate deal for a £ 114,000 mortgage their monthly loan costs rise by £ 143 per month.

Meanwhile, said an investor who over by Barclays poll found that 87 percent of respondents believe that interest rates are set to be raised againlater this year, with 45 percent believing they will break through the barrier to six percent.

Equity analyst Henk Potts said that companies "continue to push through price increases announced" with July, while the monthly rise most frequently witness the next.

David Stubbs, senior economist at the Royal Institution of Chartered Surveyors, claimed that, although the holding was not "unexpected," at least one further rise is still on the cards "with a rise to at leastsix per cent by the end of 2007 on the debate.

Alleged However, Warren Bright, chief executive of propertyfinder.com, that consumers do not yet feel the total effect of the two most recent base rate rises on their ability to make a homeowner loan repayments should the MPC cut interest rates to avoid unnecessary policies.

"We are against any further action that would warn the pressure on the people who is trying to buy or sell homes," he claimed.

These feelings were by David Merifield EchoPresident of the Chamber of Derbyshire and Nottinghamshire.

Mr Merifield told the Sheffield Star that the MPC "keep right" to the interest rate in June was 5.5 percent and suggested that an excessive rise could result in 'monetary overkill'.

As a result, may look to consult closely at the following address, competitively priced personal loan to act quickly, as Mervyn King, governor of the Bank of England has said that interest rates could also rise in theshort term.

In an interview with the Confederation of British Industry in Wales, he warned consumers on personal loans that they should not perhaps make the base rate rise in the future.

He said: "Obvious though the point may seem, it would be unwise to borrow so much that the repayments are affordable only if interest rates remain at the first level."

However, Mr King has good news for consumers - noting that the inflation are set to fall --caused by lower energy prices, making the British in an attempt to help repayments on personal loans, credit cards can and other forms of borrowing.

Despite this announcement, the interest rates seem almost certain to increase at least once before the end of the year, so for those with financial difficulties in the choice of a low-rate personal loan to consolidate their debts now could be a wise choice.