There is a very direct corolation between gold and interest rate action.
If long rates back up in relation to short rates, that affects the Real Economy. Mortgages become more expensive; car loans become more expensive, and business loans for small business bedome more expensive. This slows the real economy and over time weakens the dollar, as it shows inflation expectations rising which means real rates are falling and it keeps borrowing at the short end high - which piles up debt and further weakens the dollar - which is ultimately good for gold as a defensive asset.
If short rates fall this is good for the Financial Economy. It benefits those powerful entities that can qualify for short term loans that can be rolled over ad inifititum - like the US government and the companies that are now partially owned and fully sponsored by the government and those powerful oligarchs running the government sponsored companies like major defense contractors, critical materials companies, and the high tech sector - especialy anything with AI in the company syllabus. This too is good for gold because it means the the largest debt accumulating sectors of the economy - led by the US Government will keep piling the debt up ad infitum which destroys the value of the dollar over time.
This is the loose money model now adopted by the US governement.
The tight money model would be one that keeps raising the Fed Funds rate until inflation is choked off. This will bring down the long rates in realtion to short rates, as the market realizes that the government is serious about fighting inflation, and as the shorter end becomes more expensive the elites are forced to borrow at the longer end which is much more expensive, thus encouraging less debt. This supports a sronger dollar. This is not good for gold.
This is the model that Warsh Fed clained to support. Yet they refuse to raise the Fed Funds rate.
Why?
Because of course they can not raise short rates because those who benefit - the government and the elite running the government and the compaines they own and sponsor would suffer. First off, Interest Payments on the national debt would become even more expensive and they are already over a trillion dollars a year which is all currently fincanced at the very short end. Second, the financial economy which exlusviely benefits the elite - including the banks that own the Fed, and currently make most of their profits trading in the financial economy - would be crippled by higher borrowing costs. The real economy would benefit over time. But who really cares about that when the bottom 80 percent of the population toiling in the real economy only account for less than 35 percent of consumer spending?
So it's a lock that the easy money - perpetually low short rate economy - must and will continue.
This is the best possible scenario over time for gold.
