{"id":4718,"date":"2022-12-11T15:02:01","date_gmt":"2022-12-11T14:02:01","guid":{"rendered":"https:\/\/ancstockinvestments.com\/blog\/?p=4718"},"modified":"2022-12-11T15:02:04","modified_gmt":"2022-12-11T14:02:04","slug":"how-real-interest-rate-affects-god-price","status":"publish","type":"post","link":"https:\/\/ancstockinvestments.com\/blog\/2022\/12\/11\/how-real-interest-rate-affects-god-price\/","title":{"rendered":"How Real Interest Rate Affects Gold Price"},"content":{"rendered":"\n

Understanding the relationship between certain economic factors and the prices of financial assets is key to profitable trading<\/a>.\u00a0In this educational article, you\u2019ll understand how interest rates affect the prices of certain financial assets. <\/p>\n\n\n\n

For the sake of specificity, I would love to focus on commodity prices. How does the interest rate affect commodity prices?<\/p>\n\n\n\n

What is Interest Rate?<\/strong><\/h2>\n\n\n\n

The interest rate is one of the tools of monetary policy. Before I proceed, it\u2019ll be good to have a good understanding of what monetary policy means so that you can have a big picture of the article’s objective. <\/p>\n\n\n\n

Monetary policy is a set of tools employed by the central bank to control money circulation and promote sustainable growth in the economy.<\/p>\n\n\n\n

The interest rate is simply the cost of borrowing money. It is the amount charged on loans. At a macroeconomic level, we can say that it is the amount commercial banks pay for borrowing from the central bank. Interest rates could be a contractionary or expansionary monetary policy tool, as the goal could be to reduce inflation or increase money supply and economic growth. <\/p>\n\n\n\n

Smaller banks borrow money from larger banks at an interest rate so as to make small loans available to consumers and businesses. Generally, loans help boost economic activity as banks provide capital for businesses while still generating profit from the interest on such loans. Consumer loans also afford them the opportunity to buy homes and other consumer items. Hence, economic activity is happening at different levels.<\/p>\n\n\n\n

You should know that the rate the central bank lends money to the smaller banks is very important as the rise and fall of this rate affects the rate at which these smaller banks lend money to consumers and businesses. But based on the article’s subject, how does the decline in the interest rate affect the price of gold?<\/p>\n\n\n\n

Understanding the Nature of Gold and the Real Interest Rate<\/strong><\/h2>\n\n\n\n

I will start by letting you know that gold is a non-interest-bearing asset. Secondly, I would love to create a distinction between the real interest rate and the nominal interest rate<\/a>: the real interest rate is adjusted for inflation, while the nominal interest rate does not take inflation into account.\u00a0<\/p>\n\n\n\n

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