This is the part I really like
--Francisco Scaramanga, The Man With The Golden Gun, 1974
Gold has suffered a beating in recent days. In fact, it has been down strongly ever since Chair Janet Yellen the team from the FOMC finally cracked enough skulls to effectively convince the market that its going to raise interest rates next Wednesday. But what is ironic is that the U.S. stock market has remained largely unfazed by these rate hiking prospects at the same time gold has been getting drubbed. For if history is any guide, gold has traditionally shined well beyond its paper based counterpart in the days, weeks and months following a tightening action by the U.S. Federal Reserve.
Fire Away
Although it has been generally true since the turn of the millennium, let's focus on the post financial crisis period since it is the relevant context for the current market environment.
The first hint of monetary tightening after the financial world nearly imploded from 2007 to 2009 came on March 31, 2010 when the Fed brought to an end its QE1 stimulus program. While still believed by some to be omniscient, what those at the Fed did not realize at the time was the sudden termination of large scale asset purchases effectively represented a massive monetary tightening taking place all at once. But while stocks were sent reeling for months after the end of QE1 up until then Chair came running with promises that QE2 would soon be on its way in late August, gold (GLD) shined throughout the entire tightening episode in gaining +12% versus the -11% decline for the S&P 500 Index (SPY).
Just as QE1 came and went, so too did QE2. And just like after the end of QE1, stocks were quick to move to the downside once the prop
