Fed Rate Hike Triggers Gold Selloff, But History May Favor Buyers

The Federal Reserve raised interest rates for the first time in three years, and gold sold off initially. However, history suggests that this might be a buying opportunity.

In December 2015, Janet Yellen raised rates for the first time in nearly a decade, and gold fell to a multi-year low of $1,050 on the day of the hike. But over the next three years, as the Fed raised rates nine more times, gold rose 14% by year-end 2018.

The pattern is consistent: by the time the Fed actually moves, the fear is already priced in. This could be what's happening now, with gold having absorbed bad news and holding its ground despite a hotter-than-expected PPI and 10-year yields hitting 5.00% for the first time since 2007.

The market has shifted from fearing aggressive Fed tightening to pricing in a more measured path. This is constructive for gold, especially if the Fed's pace slows as inflation eases.