Charles Gibson, an analyst with London-based Edison Investment Research, is nervous. Gibson says the U.S. Federal Reserve’s statement that it would push the benchmark interest rate to 1.375% by the end of 2016 could send the U.S. economy in the wrong direction for the sake of containing mostly nonexistent inflation. He says the economy’s capacity to sustain higher interest rates—especially higher real interest rates—is limited and that could ultimately create greater safe-haven investment demand for gold. In light of some choppy economic times ahead, Gibson and his colleague Tom Hayes recommend defensive equity names with little risk in this interview with The Gold Report.
The Gold Report: On Dec. 16, the U.S. Federal Reserve, as expected, raised its benchmark interest rate by 25 basis points. Somewhat unexpectedly, gold rallied on the news. In its year-end report, the World Gold Council, along with a number of experts who have talked to The Gold Report in the last year, said its research shows that higher interest rates are not necessarily bad for gold. Do you concur?
Charles Gibson: This rise in interest rates had been flagged for some time by the Federal Reserve; it was almost market orthodoxy that it was going to happen. The initial rally was a case of “sell on the rumor, buy on the facts,” the reverse of the normal mentality. However, shortly after that, gold fell again. That, in part, was due to the fact that not only did the Fed put up the benchmark interest rate, it did so by the maximum amount, because there was some speculation that the rise might have been only 10 basis points. What continues to worry the market is Fed Chair Janet Yellen’s statement that the Fed is looking at pushing the benchmark rate to 1.375% by the end of 2016, …read more