If we look at history we can draw some interesting conclusions from interest rate cycles and how they affect the gold, stock and real estate markets.  Typically when interest rates are on the rise gold tends to rise with it and vice versa.  Typically when rates are falling stocks and real estate rise and vice versa.

For example, interest rates rose from 1.75% in 1965 to a peak of 15% in 1980.  During that same time frame gold went from $35 per ounce to a peak of $850 per ounce.  That is a 2,300% increase.  During that same time frame the DJIA was stagnant, from 856 in 1965 to 857 in 1982.

From there rates fell from 15% to where they are today at 0-.25%, which created an historic bull market in stocks, with the DJIA at 857 in 1982 to 11,722 in 2000.  The historically low interest rate environment started in 2002 just after 9/11 and continued to fuel the stock market up to 14,100 in 2007.  During this historically low interest rate environment the real estate market boom ensued.  This created a huge bubble which has long since burst and is continuing to do so.  The reasons why low rates create stock and real estate market booms is due to increased liquidity.  In addition more real estate can be purchased with lower rates, and stocks increase with investment capital inflows when not competing with higher rates on other investments.  While interest rates were falling so was the price of gold, which went from $850 in 1980 to $252 in 1999.

So what does all of this mean to gold prices in the future?  Well if history repeats itself and gold rises during times of rising interest rates, then one must ask themselves only one question: are rates going higher in the future?  I believe rates will have to come off of their historic lows; in fact they only have one way to go since they are at 0% right now.  When the economy does start to recover the Fed will have to raise rates in order to slow the flood of cheap money in order to battle inflation.

Why has gold risen during this low interest rate environment?  This is due to short-term world economic problems, with people and institutions seeking safe haven from the dollar and other fiat currencies.  Thus the demand has increased while supplies are diminishing and worldwide output is slowing down.  People worldwide are buying gold bullion and rare gold coins for preservation of capital and growth.