Gold Price and Interest Rates

This has been discussed here before, but it is an important point to mention again. The price of gold (compared to the U.S. dollar) has done well in the last few years and especially well in the last 10 years. There is a lot of uncertainty in this world and the rise in price is certainly justified.

Although some people are fearful of inflation down the road (and probably rightly so), it is not a huge factor right now in the price of gold. The reason for this is interest rates. If massive inflation were an imminent threat, interest rates would not be so low right now. Investors in bonds would demand a higher rate to compensate for the threat of inflation (being paid back in depreciated dollars).

While the gold price can still go higher, barring some catastrophe, the price is not likely to explode until we see interest rates go way up. Higher interest rates will signal the threat of high inflation as bond investors demand higher rates.

With all of that said, don't try to time things too much. If you don't own gold, get some. If the price drops, get some more.