RE: Spot Gold3 Sep 2025 09:02
Just trying to understand the link between a "Bank of Country" eg USA, cutting their interest rate and the expectation that that will raise the dollar gold price. Could someone help explain that?
My mental model of the whole interest rates economic spaghetti....
Government gets loans, if people think government is more risky they was a higher rate therefore gov debt cost increases.
Gov pays to cover debt (ignore good vs bad), public services and security (ignore how much).
Gov pays for that by taxes (ignore how, income, cgt, tarrifs) and when not enough tax, more debt.
Banks Of Country set their monetary interest rate that trickles through that country economy. When it is high, savers are rewarded and businesses and the economy scale back investments as they're usually on the back of loans to be repaid.
When the bank rate drops, businesses usually can expand, require more workers and more businesses appear. This usually increases corporation tax and income receipts.... Which means the economy is growing, which means more tax receipts to cover and pay off debt and less new debt required.
To look at the USA, kinda seems like that's what Trump is wanting. To look at home, it (was) labour's "growth plan" (don't want to start a political discussion).
My point is that lower bank interest rates "usually" stimulate the economy which in turn increase tax receipts and so forth.
After writing all of that.... Inflation has now jumped to mind to fit in somewhere 🤦♂️ that could have been what I missed as if price inflation is hig and bank of county drops interest rate, precious metal in that currency hold their value against inflation and hence rise.
Any help or pointing out where I'm wrong very welcome!
Cheers all
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