How and Why Janet Yellen is driving the Gold Train Much Higher

(March 29, 2016 - by Jon C. Ogg)

If you ever wanted to know if lower and lower interest rates for longer and longer helps to prop up the value of gold, look no further than Federal Reserve Chair Janet Yellen’s speech on Tuesday, March 29, 2016. Many Fed presidents have been speaking more hawkish of late. The mood was building that the Fed is gearing up for rate hikes again. It was assumed that Yellen might sound at least a tad more hawkish.

Yellen’s references were that the FOMC has few tools to be more accommodative, rate hikes would be more gradual, that inflation was less present than hoped, and that economic uncertainties remained. It honestly sounded like Janet Yellen was telegraphing that interest rates will never be high again.

So, back to gold. The reality is that gold loves a zero-rate or very low-rate interest rate environment. It creates an environment where gold acts like a savings bank – because neither one will pay you anything for holding it, but there is no recessionary risk of what happens to gold (the metal, not the price). If investors can earn money leaving money in a bank account, then they may be less inclined to hold gold.