GOLD vs Fed Rate Hikes. How does the metal reacts historically?

Jul 12, 2022

This is a cross-asset analysis of Gold (black trend-line) and the Effective Federal Funds Rate (green trend-line). Following the aggressive rate hiking by the Fed since the start of the year in an attempt to battle an out of hand rise on inflation, the idea of this study is to see how Gold historically reacts to raises on the Fed Interest Rates.

The Red Shapes are periods when Gold declines while the Rate is rising. The Green Shapes represent periods when Gold and the Rate rise together while the Blue Shapes are when Gold stays neutral amid Rate rises.

It is easy to see that the Red periods dominate the chart since 1980, which means that most of the times, when the Fed has risen the Rates, the precious metal is getting sold. 2022 so far seems no different as, excluding a March flash rise due to the Russian invasion in Ukraine, Gold has lost value since the start of the year and would probably be even lower if it weren't for the war.

How low it can go is anybody's guess, but this chart shows that normally during rate hike periods, Gold loses much more value than it has currently done so.


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