Although the increase in the price of gold has reached 50% since September 2022, the satisfaction of those who bet on it was comparable to that of stockholders despite the restrictive monetary policy.
Until now, we were used to the axiom – the increase in interest rates feeds the corrections in the stock markets, because the costs of companies with refinancing increase, which also affects profits, and the price of gold falls against the background of the competition with interest rates.
However, from the fall of 2022, this reasoning began to show its limits because both the stock market and the price of gold rose rapidly despite the increase in monetary policy interest rates.
How things looked in September 2022
It is the month in which both the price of gold (1600 dollars/ounce) and the stock quotations (3500 points for the S&P500 index) reached a minimum.
The central banks were just deciding on new monetary policy interest rate adjustments – the Fed was going to raise interest rates by 0.75%, up to 3-3.25%, and the ECB is starting to increase the amplitude of its adjustments, also an increase by 0.75% being reported then, up to 1.25%-1.5%.
Where are the interest rates now? In the USA we find them in the range of 5.25%-5.5% and in Europe the monetary policy interest has risen to 4.5-4.75%.
In other words, meanwhile, interest rates have risen by more than 3 percent in Europe since then and by more than 2 percent in the US, and the theory said that both stocks (due to the increase in refinancing loan costs) and the price of gold (due to competition with forward interest rates).
Well, it was exactly the other way around, we had increases in both the stock market and the precious metals market and, in fact, just about everything has gone up since then despite rising interest rates as well.
From the minimum of 3,500 points, the S&P500 index had a maximum value of over 5,250 points in March (now it is at 5,018 points) and gold in turn rose to 2,430 dollars/ounce at the beginning of April (2,310 dollars now) .
Between September 2022 and April 2024, in about a year and a half, both gold and the US stock market rose by 50%, and even if they were corrected to the maximum, the appreciation is absolutely remarkable in the mentioned market context (high interest rates) .
What can we say about the price of Bircoin, which in September 2022 was around 25,000 dollars and which had risen to 72,000 dollars in March to correct itself now to 57,000 dollars/unit.
However, it is about an asset from a much more speculative area here and the growth was close to 300% at one point.
If we look again at the theory, in the context in which there is more and more talk of reducing monetary policy interest rates, we should have appreciations in line on the gold and stock market, only the competition with term interest rates will be less tough and refinancing costs will be reduced.
Only the theory has failed since 2022 until now, why would it work flawlessly now, especially since many shares are at historical highs and valuation multiples have been signaling for some time that it would be better to stay aside?
Let’s not forget a detail that could have put the shoulder to the contradiction of the historical correlations between the size of interest rates and the price of assets – the election year 2024, in a particularly sensitive context for the political class in the West (the Trump-Biden competition, the war in Ukraine, the rise of Euroscepticism , etc.).
In addition, let’s take into account that the capital markets have the gift of anticipating political and economic developments – if in 2022 they anticipated the electoral year 2024 and its connotations, why would they calmly wait for 2024 to end in order to trigger the corrections that will balance things in 2025?
Many will want to steal the start in order to secure profits until inevitable adjustments, a trend already outlined from March-April, when the markets slowly began the corrections.
The information and interpretations contained in this article are informative and contain the personal opinions of the author. The opinions presented in the articles do not represent investment recommendations or personalized financial advice regarding your investments.
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