If interest rates go up 1%, what would likely happen with the stock market and gold?

Question

Does the economy suffer short term? Does inflation go down long term?

What is the likely effect on the stock market and on precious metals?

Answer 1

1. Market (stocks) down, gold up

2. Yes

3. Yes - but interest rates raised now would be more damaging to the precarious health of the very stretched banks, than their help to the economy, since there is already a shortage of liquidity and they would have to pay even more to gain money to loan.  

4. Gold typically goes up most often during times of scarcity, economic stress and uncertainty.  Interest rates do likewise to balance risk. The higher risk, the higher reward (interest rate) is demanded by the market and/or investor.

Throughout modern financial history, if interest rates are kept above national GDP, and taxes are kept low, inflation is controlled and growth is advanced. Greenspan let this slide under Clinton's administration, was too lax in doing so, and created the environment for the mismanagement of credit we're suffering from today in mortgages, housing, and auction rate securities/investment banking. To raise rates now, while the economy is yet fragile, would be unwise.  To do so after we regain some economic strength and credit industry footing will be essential.  And that is what you will see happen.  I feel it is more likely you'll see a reduction in rates, to no change, than you will see rates increased (in the near term).  It would not make sense, and Bernanke has made clear he supports this.

Answer 2

You seem to be interested in Gold. Right? If so stay away right now. As the other answers stated, when the stocks are up; gold is down. Gold is up right now so as they say, "buy low, sell high".

I have heard from a couple of people that the economy has hit the bottom already. So just wait for the upswing. By spring we should be gaining steam again and looking at a strong dollar . With the election in fall, housing getting its band-aid right now, and the war wrapping up, the US will be back on top in no time.  

Answer 3

Gold would probably go down because rising interest rates would probably make the dollar, and dollar denominated securities rise.  The market would probably rise also as a sign of confidence in the economy and lowering inflation.