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Gold Tends To Outperform After The Fed Tightening Cycle

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Gold News


  • Analysts maintain bullish views on gold following the US Fed rate hike.
  • Higher inflation seen along with labor market slack is rapidly diminishing in the U.S.
  • Equity correction would be an attractive entry point for medium to long-term positions.

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Investment Thesis

Gold price has outperformed after six cycles of US Fed tightening. More investors wait on the sidelines for further tightening announcements to be made in order to invest in gold. This would be resulting in pent-up demand flow-through.

Source: Goldman Sachs Global Investment Research

The US Fed announced its first rate hike of the year last March. Federal Funds rate climbed from 1.5% to 1.75%, sending the US dollar into a downward spiral, thus lifting gold prices. Gold rates increased 1.12% to $1,327 per ounce after the hike was announced.

In this economic research, we will analyze how inflation, equity risk appetite, labor market and the US dollar would influence gold prices and investors following the recent interest rate hike.

Gold Price Review

Despite higher inflation expectations and increased interest in portfolio diversification against last February's choppy market environment, gold was down by 2.0% to $1,318 an ounce.

It fell below its 50-day moving average as it reacted negatively to the stronger US dollar and ebbing geopolitical tensions. Prior to the interest rate hike announcement, gold prices were range-bound and closed near their lows. Gold equities largely traced physical gold but with higher-than-expected volatility.

The US Fed comments fueled speculation that policymakers will quicken the pace of interest-rate hikes, given signs of building inflationary pressures. Gold price is still off about 30% from the record high set in 2011 though gold's price is up 5.6% on a year-ago basis. It was quite a period for gold, reflecting the limited new interest in the sector, as general markets continued to push higher after a brief pullback.

Source: Company data, Goldman Sachs Global Investment Research

Inflation And Labor

Inflation breakevens could still rise a little further before becoming an anxiety. Economists continue to expect the rate hiking

This article was written by

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Gold News helps investors make informed market decisions through in-depth reporting, daily market roundups, interviews with prominent industry figures, comprehensive coverage of important industry events and analyses of market-affecting developments such as releases of economic reports, natural disasters and mining labor problems.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article was written by Gold News business journalist, Hans Centena. Gold News is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions. If you found this article to be informative and would like to hear more about my investment research, please consider hitting the "Follow" button above.

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