Why Inflation And 'Real Interest' Rates Are Bullish For Gold

2025-02-18 02:10:00 ET

Summary

• Isn’t a “higher for longer” interest rate environment bearish for gold? The short answer is no, because real interest rates are falling with price inflation on the upswing.
• With price inflation increasing, real interest rates are falling even as the Federal Reserve puts rate cuts on hold.
• This means that as price inflation creeps up, the opportunity cost of holding gold is dropping even if the Fed holds interest rates steady.
• The Federal Reserve could counter falling real rates by pushing the federal funds rate higher. But so far, the central bank has given no indication that rate hikes are on the table.

By Mike Maharrey

It’s clear that the Federal Reserve hasn’t won the inflation fight. With the CPI trending higher for four straight months, the markets aren’t pricing in another interest rate cut until September....

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