I’ve got to hand it to the majority of pundits out there, they just never learn or think for themselves. They keep dishing out the same nonsense, over and over again.
For instance, the notion that rising interest rates will kill equity market gains, particularly in the U.S. … or choke off a real estate recovery … or kill the gold market for good — is a myth. Period.
It might be true if interest rates were at record highs and well above the rate of inflation. But they are not. Interest rates are coming off historic record lows in many parts of the world, and they are far below the rate of inflation.
|From 1973 to 1980, when interest rates were soaring, so was the price of gold and most commodities.|
That’s important to understand. As rates rise from historic levels — whether or not the Federal Reserve does any further tapering of its bond purchases — many investors will run for cover. But the only market rising interest rates will truly hurt is the value of sovereign bonds.
Let’s consider real estate. Why would rising mortgage rates — at this point in the economic cycle and recovery — be bad for property prices?
They won’t be bad. For the simple reason that as mortgage rates rise, all the pent-up demand for property will come out of the woodwork and people will start buying — in anticipation of further increases in the cost of borrowed funds.
That’s precisely what is happening in many parts of Europe and the U.S., in particular, where a housing recovery is well under way.
Consider the latest data from Manhattan, where according to appraiser Miller Samuel Inc. and real estate brokerage Douglas Elliman Real Estate, fourth-quarter sales of condominiums and co-ops jumped 27 percent from a year earlier to 3,297, the highest fourth-quarter total in 25 years of record-keeping.
At the same time, the inventory of homes for sale at the end of December fell 12 percent from a year earlier to 4,164, the lowest since Miller Samuel began tracking that data 14 years ago.
What’s happening to prices in Manhattan?
The median price of Manhattan transactions in the fourth quarter climbed 2.1 percent to $855,000, Miller Samuel and Douglas Elliman said.
The average price per square foot climbed 8.7 percent to $1,178. Buyers agreed to pay the asking price or more in 43 percent of all sales, compared with 12 percent a year earlier.
Moreover, condo prices rose 14 percent to a record $1.32 million in the quarter, while StreetEasy.com, a property-listings website owned by Zillow Inc., reported that the median new-development price rose 76 percent to $2.18 million.
This is happening in the suburbs of America as well. Rising interest rates are motivating homeowners and investors to act now, rather than later, when the cost of borrowed funds will be even higher.
That’s just the property markets. Rising interest rates are also going to prove positive for equity markets. While equity markets in the U.S. and Europe remain vulnerable to a short-term pullback, over the long haul, rising rates will be a bullish factor.
It means economic activity is picking up. It means the velocity of money turnover is improving, and it means increasing demand for credit — all of which are bullish fundamental forces for equities.
Ditto for commodities. The notion that gold will simply roll over and die and that a new bull market leg higher is impossible with interest rates rising, is brain-dead.
Consider the last big bull market in gold, from 1973 to 1980 when interest rates were soaring, so was the price of gold and most commodities.
Sure, inflation was roaring higher then too. But that doesn’t negate the fact that gold soared with higher interest rates.
Instead, it proves my point: Until interest rates get well ahead of inflation — which is something we will not see for at least three more years based on my models — they will not be negative for gold.
That said, right now, most commodities still have some work to do on the downside before they bottom, which they will do this year probably in the first quarter.
But bottom they will — and they will rise again — along with rising interest rates.
Like many of you, I am watching gold like a hawk. It’s heading into the major 2014 low I have been expecting, where it should bottom between $995 and $1,045.
And so far, there is no evidence that the short-term cycle inversion I spoke of last week — delaying the final lows until May — is coming to pass.
That means that as I pen this column, gold and silver remain on target for a potential major low later this month. Ditto for mining shares and platinum and palladium.
Given that we may be so close to a major low in both time and price, it’s only natural to ask if one should start aggressively buying now.
My answer: No. Wait until I give you the final major buy signal. That’s what I am personally waiting for before I load up for my family. So I give you the same information I am acting on.
And rest assured that when that signal comes, I will be recommending a nice combination of physical precious metals, ETFs including leveraged ETFs and, for some of the best profit potential available, select mining shares.
Subscribers to my services, Real Wealth Report, Hard Asset Trader, Power Portfolio and Gold and Silver Trader will get the signal first, and simultaneously.
That’s to be expected. So if you want to be among the first to know when the metals bottom and how to play it, I strongly suggest you join one of my services.
P.S. With my Real Wealth Report you get the independent research and in-depth analysis needed to maximize profits in hard assets, including gold bullion, gold stocks, and other precious metals and natural resources investments. Click here to join now.