Gold is sighing in relief as for the third day it’s price has surged up. Higher short term interest rates are deadly for the yellow metal as holding the precious metal becomes an expensive proposition for the investors. They get nothing in terms of interest for holding the metal but also have to pay for the storage cost that is expensive. Higher short-term rates are often seen as the mortal enemy of gold, for a few distinct reasons. First, gold bars throw off no yield (conversely, they are costly to store) so they become an increasingly inferior means of preserving wealth the higher that risk-free rates rise. Second, rising short-term rates are positive for the dollar, as it makes holding the greenback a more attractive proposition. And a stronger currency means that it takes fewer of those dollars to buy the same amount of gold.
Another thing that you should know is this: Greece is good for the gold. As long as the Greece crisis continues, you should expect gold prices to surge up. The precious metal surged 2 percent Thursday, as fears of a Greek default have investors running for the perceived safety of gold. But the spike didn’t surprise one trader, who placed bets Wednesday that gold could rally post-Fed.