For months, the Federal Reserve has held firm in keeping interest rates low to help bolster our struggling economy amid the past two years’ events. At some point, though, the Fed may need to give in and begin raising interest rates again—likely in 2022. We’ll look at how the price of gold has been ticking up and down in the past few months, seemingly tied to news about interest rates, and what we can expect once interest rates do increase.
The Price of Gold and Interest Rates
When interest rates rise, that tends to push bond yields up, according to CNBC. This helps result in a higher “opportunity cost” for owning gold. But when interest rates remain relatively low, gold tends to attract buyers who are searching for a safe-haven asset.
Of course, no one knows when the Fed will ultimately boost interest rates. In the meantime, gold prices are bound to fluctuate, leading to lower prices that could spur buying activity or higher prices that could drive up the performance of the yellow metal.
What Could Interest Rates Be in 2022?
Trying to figure out when the Fed will increase interest rates is a popular guessing game. Some experts think the Fed could bump up interest rates sometime in 2022.
The International Monetary Fund (IMF) forecasts that the Fed will increase interest rates in late 2022 or early 2023, according to the Bloomberg news service. Meanwhile, the Fed is expected to scale back asset purchases in the first half of 2022.
The Fed is likely to institute at least two interest rate hikes in 2023. Yet some Fed leaders want to see rates go up earlier, sometime in 2022. For now though, interest rates set by the Fed continue to be close to rock-bottom levels.
In July 2021, Fed Chairman Jerome Powell said the Fed was still “a ways away from considering raising interest rates. It’s not something that is on our radar screen right now.”
What Might the Mortgage Interest Rate Forecast Be for 2022?
Mortgage interest rates will likely go up in 2022 if the Fed hikes interest rates. But just how much mortgage interest rates will rise is anyone’s guess. Several organizations have weighed in with their own outlooks, though. According to Forbes:
- The Mortgage Bankers Association predicts that long-term rates will reach 4% by 2022 and be capped at 4.3% by the end of next year.
- PNC expects the 30-year fixed mortgage rate to jump to 3.4% by the end of 2022.
- Freddie Mac forecasts that the 30-year fixed mortgage rate will hit 3.7% by the end of 2022.
- The National Association of Realtors predicts that rates will average 3.6% in 2022.
According to Bankrate, the average fixed rate for a 30-year mortgage was 3.21% in mid-October 2021, up from 3.03% just a month earlier.
Higher interest rates translate into less money in the pockets of homebuyers because they’re paying more to borrow money. Higher rates could dissuade some people from buying a home and instead steer them toward putting money into alternative assets like gold.
By contrast, someone who buys a home while interest rates are low could save money over the long run, freeing up cash to purchase gold or other alternative assets.
A related insight to keep in mind is the gold-to-house ratio. The gold-to-house ratio measures the relative value between gold and real estate, not necessarily interest rates.
But according to certified financial advisor Daniel Amerman, “History shows that if you can buy gold ‘cheap’ while real estate is relatively ‘expensive,’ then on an asset price basis, gold is likely to strongly outperform real estate as an [asset], all else being equal.” He continues, “Conversely, when real estate is ‘cheap’ and gold is ‘expensive’ relative to its long-term averages, then it is real estate that is likely to powerfully outperform gold as an [asset] over the long term.”
Do you think it’s time to lean into physical gold, real estate, bonds, or another asset altogether with what you know now? Download a free Gold Information Kit for everything you need to know about buying gold right now. Call U.S. Money Reserve at 844-307-1589 to learn more about current gold prices and the precious metals landscape.