Gold's Growing Immunity

From The Street:

Gold prices shrugged off global rate hikes Monday as trading stayed light and the Eastern Seaboard coped with the aftermath of a blizzard.

Gold for February delivery added $2.40 to $1,382.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Monday has traded as high as $1,387 and as low as $1,372.70.

The greatly talked about and feared event of a rate hike in China happened with little fanfare for gold prices. The People's Bank of China raised the one-year lending rate by 25 basis points to 5.81% on Christmas, the second time in more than two months, to fight inflation. The one-year deposit rate rose to 2.75%.

China had raised the amount banks must keep in their reserves six times this year in order to take money out of circulation, but November's inflation reading was still 5.1% vs. a year ago.

The much more aggressive step of raising key interest rates had been long feared by gold investors. Higher interest rates make it more appealing to keep money in the bank, and a higher lending rate makes it less appealing to borrow. Both might hurt consumer demand for gold, despite the fact that China had been actively trying to promote it.


While we expected gold to drop back and correct some of its recent gains after China announced its interest rate increase, the yellow metal has doggedly determined to stay above the $1380 level.
Historical behavior of gold shows that it tends to be rather interest rate sensitive as it earns no interest, nor provides any dividends.
If the reaction of the last few days lasts, it is a huge wake up call for the QE money printers in the US and Europe.
It could mean we have a new higher floor price set under the precious metal as central banks continue to accumulate in the face of increasing worries about sovereign bond defaults in the longer term.
Ben Bernanke, are you listening to the noise the yellow metal is making?