In the past, we wrote an article about the relationship between interest rate changes and the price of gold. This coming Thursday, the European Central Bank (ECB) is expected to raise interest rates by 25 basis points, marking the tenth consecutive increase. During the ninth increase, we noted that the deposit rate was equal to the highest ECB rate ever.
 

Interest Rate Decision

It is a challenging situation for the ECB. For over a year, they have been raising interest rates to curb inflation. The result is visible, and the economy is beginning to cool, which raises the question of how wise it is to continue increasing interest rates.
 
On the one hand, the ECB must adhere to its primary objective: maintaining price stability. Given the still-high inflation faced by households, a logical move would be to further raise interest rates. However, the ECB must also be careful not to keep raising rates for too long, as this could lead to prolonged negative effects.
 
Raising interest rates would help prevent overheating of the Dutch economy. According to Rabobank, 1% more is currently being produced than what we can maximally produce. This may be due to overworked staff or delayed maintenance on machinery. Nevertheless, the expectation is that, in the long run, this will lead to further price increases.
 
By raising interest rates, the economy is being squeezed. However, the effects of interest rate changes are felt with a delay, meaning that raising rates could also worsen a recession.
 

Relationship Between Interest Rates and Gold

Raising interest rates is the tool used by central banks to cool down the economy and reduce inflation. High interest rates make borrowing money more expensive but also make saving money more attractive.
 
When saving money yields a return, people are less likely to invest (in gold and silver). Normally, gold performs worse with high interest rates, and despite a year of rapid rate increases, gold has performed better than expected.
 
When looking at the gold price in dollars per troy ounce, it was around $1,800 in 2022. In January, the gold price opened at $1,824 per troy ounce, and at the time of writing, the gold price stands at $1,912 per troy ounce. This means that gold has performed well, even during a period of significant rate increases.
 

Buying Gold

At The Silver Mountain, we sell the most well-known investment coins, such as the Maple Leaf and Krugerrand, and also gold bars from recognized producers.
 
Finally, we offer a unique buyback guarantee, allowing you to sell your precious metals back to us at any time, regardless of the gold price or the quantities you wish to sell.
 
Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be considered as such. Past performance does not guarantee future results.