But, what is the relationship between gold and the going interest rate at any given time? Plus, why do you always hear people say that they have “earned” such-and-such an interest rate on their holdings of gold bullion? Finally, is it possible to calculate an estimated rate of return on any of the precious metals?

Here’s what we’ll take a look at:

1. How does the price of gold respond to interest rates and the strength of the dollar?
2. How do holders of precious metals, both silver, and gold, earn money on their assets?
3. Is it possible to estimate, within reason, a rate-of-return on gold?

The Dollar, Gold, and Interest Rates

Some gold investors pay close attention to two things: the strength of the U.S. dollar and the interest rate. There has been lots of scholarly research into the relationship between these factors. What is the truth?

First, all you need to do to discover how gold and the dollar perform is to look at an overlaid chart. In most cases, when the dollar gains strength, the price of gold drops. The two are said to have an inverse relationship.

Likewise, you’ll often hear talk about interest rates also being an inverse indicator of gold prices, but that is not actually the case. Many studies have shown that while gold and interest rates do occasionally travel in opposite directions, they also rise and fall in tandem as well.

Earning a Return on Gold and Precious Metals

Like all other commodities, which is what precious metals really are, gold does not earn interest. Instead, holders of the metal make gains based on appreciation, much as someone might show a profit by holding real estate, diamonds, or fine wine. However, compared to assets that do pay interest, gold compares favorably, as noted below.

Investors who keep the bulk of their assets in gold do so for reasons other than interest rates. Many hold the metal because they believe that the world economy, or the national one for that matter, is about to take a dive.

Recent pandemic-related problems, supply-chain disturbances, the soaring price of oil, and international political conflict all point to a very positive near-term future for the price of gold, silver, and other precious metals.

What’s a Realistic ROI for Gold?

Between 1971 and 2019, people who held gold bullion enjoyed a rate of return of about 10.6 percent. That contrasts with U.S. stocks which returned about 11 percent during the same time frame, and bonds, which were not nearly as favorable, at six percent.

Keep in mind that most gold enthusiasts are not so interested in historical returns on the metal as they are in the future potential of the metal to appreciate significantly in value if the global economy goes into crisis mode or hits periods of significant turbulence.

If you simply want to calculate what you’d earn by investing $2,000 per year, for example, in gold bullion and assume it earns its historical return of 10.6 percent, use this calculator.

Here’s an example, using the $2,000 per year figure above. Then, assuming a 10.6 rate, begin with a zero balance, contribute the $2,000 in gold at the end of each year for the next ten years, and use the calculator to show your result of $33,654 by the end of the 10-year period.

Conclusion

While gold, silver, platinum, and palladium don’t pay interest, they are valuable assets that do tend to appreciate in value over time. This is especially true when the economy is in trouble and investors search for so-called “safe havens” for parking their capital.

Gold usually goes up when the dollar goes down in value, so the two are said to be inversely related. But even though many people believe that rising interest rates send gold down in value, there’s no long-term proof of that theory.

As far as ROI is concerned, it’s essential to understand that while the 48-year return on gold is about 10.6 percent and comparable to stocks, the yellow metal and the securities markets often trend in opposite directions.

That’s why so many people aim to balance their stock portfolios with precious metals, especially gold and silver.

What’s the answer? Depending on your tolerance for risk, the amount of money you have to invest (or lock away), and other personal factors, some of the better choices include holding at least a portion of your wealth in cash, opting for high-yield stocks, eliminating credit card debt, allotting an amount to REITs (real-estate investment trusts), starting a small e-business, ramping up retirement accounts, taking a look at precious metals, and exploring the volatile world of cryptocurrency.

Here are some details about each approach for investors and consumers who want to get the highest possible return, in interest or ROI, on their assets in an uncertain economy.

Retirement Accounts

One of the most innovative things to do when interest rates are dismal is to ramp up your retirement accounts. Of course, there are limits to how much you can contribute each year, but make sure you at least reach the maximum on those. Then, after hitting your IRA ceiling, consider setting aside whatever is left in one of the other seven items on this list.

Real Estate

If you don’t want to get directly involved in the complex business of buying, owning, and managing real estate, consider REITs, real-estate investment trusts. These popular financial vehicles are ideal for people of all income levels because you can purchase as many or as few shares as you wish, based strictly on how much you want to allocate toward the RE market.

Stocks

Stocks, in general, are usually not a good play during a volatile or weak economy. However, there are several ways to cherry-pick certain kinds of shares for excellent results. Potentially, so-called “dividend aristocrats” and growth stocks are choices that can help you get through a tough couple of years.

Aristocrats are high-quality corporate shares that have a long history of paying regular dividends, which you can promptly reinvest directly into the stocks. Growth companies are entities that don’t pay dividends but offer investors the chance to take part in rising share values over time. Both kinds of shares are popular during sluggish financial times.

Cash

Cash is the default option for people who have almost no tolerance for risk. But, it’s often helpful to hold somewhere between 10 and 30 percent of your portfolio in cash if you think the stock market is approaching a major correction. That way, you’ll be able to use the cold cash to buy up bargain shares after the drop-off. Some of the world’s most well-heeled and famous investors use this tactic to their great advantage.

Debt Reduction

An economic downturn is an opportune time to eliminate any high-interest credit card or other debt on your personal books. Rather than earning interest on a portfolio, consider getting rid of those high card rates that are eating into your overall financial health.

Cryptocurrency and Precious Metals

If you like alternative investments, both crypto and gold (or silver) are apt selections when stocks are under-performing, inflation is rising, and the general monetary outlook is volatile. Both gold and crypto are forms of “safe haven” investments where people park assets during bad times.

E-Business

When the best interest rates you can find in traditional savings accounts, on bonds, and in CDs are hovering around the one-percent mark, starting a new small business can be a wise way to use the financial assets you have available. Don’t expect quick returns, but consider the big picture when starting an e-commerce business.

Many folks begin small as resellers or with digital products, like downloadable reports and specialty product reviews. In fact, one of the fastest-growing online business niches is in the review area. To get started, find a product line that you know a lot about and enjoy reviewing. Then, get busy posting objective, well-written, long-form reviews about the top sellers in the segment. Later, after you build up a solid readership, you can earn income by selling ads on the site.

The Bottom Line for Money Ideas in a Bottomed-Out Economy

There’s more than one way to skin a cat, as the old saying goes. Sometimes, it makes no sense to seek out passive, interest-bearing accounts like those offered at banks and S&Ls. Instead, try putting your money to work for you in creative ways that have at least a chance of turning a small investment into a worthwhile one.