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Why Is Gold And Silver So Low?

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Author Previous TopicReplies: 3 / Views: 203Next Topic  
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 Posted 05/13/2022  07:55 am Show Profile   Bookmark this topic Add jaxenro to your friends list Get a Link to this Message
Gold and silver are usually thought of as an inflation hedge, that is one of the reasons I stack it, but lately as inflation is climbing gold and silver are dropping? Why?


I know that sounds counter to the prevailing wisdom but as the Fed raises interest rates to counter inflation the "value" of the USD, as expressed against a basket of world currencies, is rising. As gold is valued in USD, and the value of the USD is rising against the other world currencies, the price of gold is dropping.

"In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue. The Laffer curve assumes that no tax revenue is raised at the extreme tax rates of 0% and 100%, and that there is a tax rate between 0% and 100% that maximizes government tax revenue."

In other words, cutting taxes increases revenue by spurring economic growth resulting in more activity to tax even at a lower rate, until the tax cut is so great that the economic growth isn't enough to offset the lower rate.

At some point I think we may see a similar effect with the USD. If the US inflation rate exceeds the worlds by a larger amount than the increased Fed interest rate than holding USD would be a losing proposition and the USD would drop in relationship to other currencies. Also if other countries raise their interest rate to counter the Fed

For example the US has a 8% inflation rate and the UK 7%. If the interest rate in the US exceeds the UK rate by 1% than holding USD versus Pounds Sterling makes sense and the USD would rise against the GBP. A year ago one GBP was worth $1.40, today closer to $1.20. That difference is reflected in the price of gold.

Yes there are many other factors that come into play in setting the relative value but I think gold and silver are being held down due to a strong dollar relative to other currencies and if that strength falters gold and silver will rise proportionally

Edited by jaxenro
05/13/2022 07:55 am
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 Posted 05/13/2022  08:07 am  Show Profile   Bookmark this reply Add thq to your friends list Get a Link to this Reply
Yesterday the dollar euro exchange was down to $1.04. As low as I can remember in 20 years. Will other nations follow the Fed and raise interest rates to protect thir currencies? Or will the Fed back off? Do they have the patience to suppress inflation? For the time being inflated metals will continue to erode in dollar price IMO. That is what the Fed is trying to do, though they're more interested in lowering food and fuel prices than metals.
"Two minutes ago I would have sold my chances for a tired dime." Fred Astaire
Edited by thq
05/13/2022 08:15 am
Valued Member
United States
452 Posts
 Posted 05/13/2022  09:32 am  Show Profile   Bookmark this reply Add jaxenro to your friends list Get a Link to this Reply
Agreed metals price is a by product not a concern of the Fed. I do think at some point metals will rise and fast when they do but we haven't hit that part of the curve yet

Remember a strong dollar makes imports cheaper as it buys more foreign currency
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 Posted 05/13/2022  10:19 am  Show Profile   Check Pacificoin's eBay Listings Bookmark this reply Add Pacificoin to your friends list Get a Link to this Reply
The USD is going much higher
and PMs are going to get smacked as a result .
People paying huge premiums for silver right now
Need a reality check .
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