Interest Rate Hikes Won't Hold Gold Back

Although there are some analysts who worry that higher interest rates are an early indicator of a developing bear market in gold (gold has no yield, the higher interest rates climb, the greater the relative appeal of other assets), the actual evidence doesn’t support this view according to Russ Mould of the investment platform AJ Bell (as reported in the UK’s  Daily Telegraph). 

Mould has examined the last seven cycles of US interest-rate hikes by the Federal Reserve, and notes that gold has on average gained 86% between the first increase and the last. 

The Fed has hiked interest rates five times since 2015, and in this time period gold has gained 23%.  Gold is currently at a five-month high (19 Jan 2018).

The reason for this behaviour: interest rates are often increased to forestall or temper inflation.  Gold is  regarded both as an excellent hedge against inflation and store of value.  There is now a general belief that inflation will return this year. Thus, gold is seen as an attractive hedge. The consensus of opinion seems to be: hedge with gold in 2018.

​Source: MoneyWeek (19 Jan 2018)

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