The time will soon come: the central banks will probably start cutting interest rates from mid-2024. On the face of it, this is good news for investors: Tangible assets such as real estate, shares and gold have been rising in value when interest rates fall since the 1970s. However, this view is too one-dimensional. This becomes clear when the long-term developments are placed side by side. Since the 1980s, both real assets and interest rates have risen. So it's not that simple, which is why we take a closer look at the asset classes.

Let's start with gold. The usual narrative that high interest rates would make gold unattractive as an investment, as gold bars are not known to yield interest, does not correspond to reality. When the price of gold had risen particularly sharply up to 1980, interest rates had also climbed to a high level of between 10 and 13 percent. The fall in the price of gold over the following 20 years from 850 US dollars to 258 US dollars was accompanied by a global decline in interest rates of over 10 percentage points to 4 percent; falling interest rates therefore did not help. For a long time, a much more meaningful correlation was that with the yield on inflation-linked US government bonds. However, this correlation has no longer existed since the beginning of 2022. Many investors are probably too worried about the financial stability of the US due to rising defense spending. Nevertheless, falling interest rates will not harm gold going forward.

In the case of real estate, too, it is not only interest rates but also inflation that influence pricing. However, it is not the simple price trend as with gold that is used, but the per capita income of the respective country, from which the purchase prices, rents and mortgage interest must be paid. Per capita income is the basic trend that residential real estate prices follow. However, there is a stable and economically logical relationship between falling mortgage rates and falling expected income, consisting of rental yields and average inflation over the last ten years. As we assume that average inflation will continue to rise in the coming years, income expectations are also likely to increase significantly, as are property prices.

Falling interest rates should actually always be beneficial for shares. Most companies are more or less highly indebted and therefore benefit directly from falling interest rates, as their own debts incur lower interest costs. In addition, this makes these forms of financing cheaper for the customers of companies who make their purchases with loans, installment payments or leasing; more can be purchased. Finally, falling interest rates make investments such as savings accounts or bonds less attractive than shares. This effect still applies today, even if it has been partially weakened in recent decades as investors have had concerns about the stability of the financial system due to various crises. However, the courageous intervention of central banks, for example during the coronavirus crisis, helped here.

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