Will gold shine again?

Every single “NO” to interest rates increase announced by FED forces the shining commodities gold and silver to suffer as the physical bullion cannot default or be inflated, it doesn’t pay you anything in monthly or annual yield either.

But is it the real reason why gold and silver prices pointing south?

Gold has risen more than 50% of the time when the US Fed has raised its key interest rate.

There is a common saying in trades: ” Sell the rumour, buy the fact” andmay be that is the reason why we do not see the real effect. Because this announcement had already been priced with the expectations of the investors.

However the history shows us the opposite. Since 1968, gold has fallen only 34 times across the 3 months leading up to the Fed’s 84 rate hikes.

We can check the pattern below to see the reaction of gold to Fed Rate.

gold-fed-rate-hike-cycle_0 Will gold shine again?

As you can see, the table tracks gold’s percentage price-change over the 3 months before each hiking cycle begins…over the first 3 months after it starts…and over each cycle’s first 12 months.

At the bottom, you can see the average outcomes, plus the average data for the entire period since 1970 – whether rates rose, got cut, or went nowhere. (Median is the point at which half the results are better, half are worse.)

The steady recovery of the US economy has allowed the US Federal Reserve to end quantitative easing and begin considering rate hikes, possibly as soon as June.

The value of the US Dollar (USD), the currency of choice in the global commodities trade including gold and silver, has soared versus other currencies.

The prices of many other commodities including industrial metals, crude oil, natural gas and agricultural goods, have fallen in USD terms.

 

Since 2009, the Fed has been holding its policy rate below the rate of core inflation. When the Fed holds Fed Funds below the rate of headline inflation, there is a tendency for gold prices to soar.gold-fed-rate-hike-cycle_0 Will gold shine again?

The tendency appears to last until the market begins to anticipate that the Fed will hike rates or tighten policy (by ending quantitative easing, for example).

 

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