WRONG!
On the surface, this interpretation is plausible enough. After all, the higher interest rates are, the more advantage those delicious pieces of paper which "yield" a return have over stodgy old Gold which just sits there and glitters sullenly. Everybody "knows" - they should, they have had it pounded into them over the past quarter century - that Gold labours under the fatal investment handicap of being "yieldless".
In truth, of course, before 1971, Gold wasn't looked upon as an "investment" at all. Quite right too. It was looked upon as either money or the stuff behind the money. Nobody looked upon a Dollar bill (or for that matter a 100 Dollar bill) as an investment and nobody looked upon Gold as an investment either. Money is used to BUY investments, as it is used to buy everything else. An investment it ain't.
The "bedrock" type of interest-earning investment has always been government-issued certificates of indebtedness known as bills, notes and bonds (depending on their maturity). There is also corporate debt, of course, and even mortgage debt. All these pay a yield too, an even higher one than the government issued stuff. But the "blue "chip" stuff, the ultimate "safe haven" stuff, has been government paper for a long time now.
In the 1970s, the great currency analyst Franz Pick coined (you should pardon the expression) a definition for government debt paper. He called it: "Certificates of guaranteed confiscation". The reason is very simple. Governments, by their nature, produce NOTHING. Their legitimate functions of protecting and defending the citizens of the nation is, as it must be by its nature, a COST on those same people. Their illegitimate functions which have grown to grotesque proportions are not only a cost to the people, they are an ever growing impediment to the economic well-being of the people.
Government debt paper in all its variety is nothing more or less than an IOU. Since the government is a COST on the economy, there is no government "production" out of which these IOUs can be serviced and ultimately repaid. There are only two means which the government has with which to service and repay them. The first is by taxing. The second, and far more "popular" one - to governments anyway - is to debase the currency with which the debt is "repaid".
In short, once government decides to live beyond its means (extracted through taxation of some form), its only means of servicing and repaying its debt is through confiscation. The higher the debt rises, the more draconian the confiscation must become - just to service the debt. As for repaying it, there comes a point where that is no longer possible. Since almost all governments have long since reached that point, the future is one of increasing confiscation - to the point where any more increases become quite literally impossible. At or shortly after that point, the end result is repudiation of the debt. In effect, that is what the US Government has done - twice. The first time it did so was when it confiscated privately held Gold inside the US in 1933-34. The second time was when it repudiated its international obligations by severing all ties between it's "money" (the US Dollar) and Gold in 1971.
$US 7,600 Billion of the $US 8,000 or so Billion which the US Government owes as its "funded" debt" has been brought into existance since they severed the Dollar from Gold in 1971. For every one percent that the interest rate on the funded (never mind the UNFUNDED) debt of the US government rises, the increase in servicing costs is $US 80 Billion. In 1971, for every one percent the interest rose, the servicing cost rose by 4 Billion.
According to the latest estimates, the current population of the US is (just under) 296 million people. $US 80 Billion (the cost of a one percent rise in the interest rate on government debt) works out to $270 per man, woman and child. In more realistic terms, in terms of the actual PRODUCTIVE population of the US, one could at least double that figure.
An interest rate always reflects the preference for present goods over future goods. In fact, the reason that interest rates exist is that there IS a preference for present goods over future goods. Note closely here the use of the term GOODS - actually existing GOODS over GOODS which are either not yet in the possession of the borrower or do not yet exist at all.
There are two other components which may, or may not, form a portion of the interest rate for a given loan. The first of these is called the "entrepreneurial component". This measures the viability of the borrower and is the reason why a "credit rating" is so important. A borrower with a viable means to create wealth out of what is borrowed and a track record of having done so in the past will command a low (or even non-existent) "entrepreneurial comonent". A borrower with neither of these attributes will pay a higher interest rate because the component will be higher.
The other component of what Austrians call the gross market rate of interest is called the "price premium". This component reflects the standing of the currency in which the loan is denominated. A loan denominated in a SOUND currency with a proven record of stable or even increasing purchasing power will NOT include a price premium at all. The reason for this is that the lender is completely confident that the money he is repaid in will NOT lose purchasing power in comparison to the money he has lent. The worse the reputation of the currency, the higher the price premium as a component of the gross market rate of interest.
Now THIS is where the idea of Gold being "harmed" by higher interest rates bites the dust. A government is NOT productive, so the "entrepreneurial component" of the interest rate demanded for their debt paper is not applicable. What is applicable in this context is the "confidence" the lenders have in the government's ability to CONFISCATE - remember Mr Pick's definition - the means to service and repay the loan.
But the component of the interest rate which is the PRICE PREMIUM is most definitely applicable. It is in fact the major factor in the level of the interest rate on government debt.
The period of the biggest and most sustained increases in US interest rates was the 1970s. This coincided with the decade of the explosion of the US Dollar price of Gold. The fact that these two events coincided is NOT a coincidence. The 1970s was, above all, the decade where the very viability of the US Dollar came into question to an extent unmatched over the past century. The PRICE PREMIUM component of US interest rates rose and rose to match this rising disquiet. When the Fed stopped trying to control rates in late 1979, US interest rates spiralled to heights never approached before - or since.
To say that rising interest rates are "bad" for Gold is to assume that the fact that the interest rate is rising does NOT reflect any concern over either the borrower of the means of repayment. Unfortunately, in the REAL world, this is NOT the case. Rising interest rates ALWAYS reflect such concerns, and the rate at which they rise reflect the rate at which this concern is growing. Central Banks and Treasuries have evolved very complex manipulative procedures to damp down this concern or, if that proves impossible, to minimise its effect on the interest rate. These procedures can "work" for a while, but they can only do so by making the end result even worse than it would have been had they not been employed.
A rising interest rate, especially a quickly rising interest rate in the debt obligations of governmnent, is ALWAYS the result of a deepening concern over the viability of the borrower and that borrower's means of repayment. In the case of the US government, that means of repayment is the US Dollar.
That is the reason why Gold always does BEST in times of quickly rising interest rates. US interest rates, especially the rates on Treasury debt, have been inexorably rising for the past six weeks. It is NOT a coincidence that this has been the period during which $US Gold has broken through its old bull market highs.
Monetary manipulation and statistical ledgerdemain can confuse, obscure and misrepresent the true state of an economy. These actions can indeed delay the day of financial reckoning. The problem for those who indulge in them is that the end result once they lose control (and they always do) is worse in proportion to the amount of manipulation and ledgerdemain indulged in.
One of the first signs of such a loss of control is always rising interest rates, which rise as the degree of concern about the TRUE financial and monetary state of affairs can no longer be obscured or denied. We are seeing the first signs of that happening. And that is always "GOOD" for Gold. It promises to be very good indeed for Gold, given the present situation.