Gold Quietly Emerging (GLD, IAU)

The experts tell us not to fight the Fed, write Texas Hedge Report analysts and editors Todd Stein & Steven McIntyre. In an environment of rising rates, gold’s good times are finished, so we are told. Indeed it is true that according to logic, holding gold and silver bullion should become less and less attractive as bond yields rise. But we believe that moving entirely out of gold and into paper bonds is just about the worst thing one can do with one's savings at this time. [There are currently two Gold ETFs: GLD and IAU.]

First, let’s examine the argument that rising rates are detrimental for the price of gold. History tells us that this is not necessarily the case. During the late 1970s, the Fed Funds Rate tripled, yet gold went up five-fold in this timeframe. Such price action is clearly a case of rates playing catch-up with gold and other commodities, not the opposite as we are so often told. This catch-up phenomenon repeated itself in the 1980s and continues today. The Fed funds rate has doubled since gold hit its most recent high in November 2004, yet the yellow metal is less than 5% off this peak.

Still don’t buy our argument? Are you unwavering in your view that gold and silver have inverse correlations to rates? Well then, we have good news for you. The rate increases, whatever you think their effects have been, could be about to end. Suppose the Fed will hike maybe one (September meeting) or two more times, just enough to make something in the economy “break