Gold Thrives Despite Fed Rate Hikes: A Contrarian View
Traders often react irrationally to Federal Reserve rate hike announcements, causing sharp selloffs in gold prices. However, history suggests that Fed-rate-hike cycles are actually bullish for gold. In fact, since 1971, the metal has averaged a 26.3% absolute gain during these periods.
The recent June FOMC meeting was a severe example of this phenomenon, with gold plummeting 11.6% in one of its worst months ever due to rising Fed-rate-hike fears. However, in the aftermath of this week's rate hike announcement, gold has reacted more favorably, closing only 0.7% lower at $4,266 and surging as much as 2.7% to $4,380 since then.
The key difference between the two episodes is the new approach of Fed Chairman Kevin Warsh, who emphasized price stability rather than rate hikes. This change in tone has greatly reduced Fed-rate-hike fears, leading traders to buy gold instead of selling it.