Gold Defies Expectations as Rate Hike Cycle Kicks In

The US Federal Reserve has raised interest rates for the first time since July 2023, sparking concerns about gold prices. However, history suggests that gold often outperforms after the initial rate hike in a tightening cycle.

A World Gold Council analysis of four decades of Fed rate-hike cycles found that gold typically underperformed before the first rate hike but then recovered and outperformed afterwards. In fact, during the 2004 cycle, the Fed raised rates 17 times for a combined 425 basis points, taking the federal funds rate to 5.25%, yet gold rose roughly 49% over that same span.

In recent years, gold has shown resilience despite rising real yields. During the 2022 rate hike cycle, gold initially dipped but then started to rise, gaining roughly 13% in 2023 and 65% in 2025. Central bank demand for gold also surged during this period, with banks purchasing over 1,000 tonnes of gold annually.

The current rate hike cycle may be different from previous ones, given the ongoing economic uncertainty and inflationary pressure. However, gold prices have shown strength in the Indian markets since the September rate hike, with spot gold trading close to $4,400 per ounce on MCX India.