Gold’s relationship with monetary tightening is often misunderstood. Conventional wisdom suggests that higher interest rates should automatically be negative for gold. History tells a more nuanced story.
As the chart shows, gold has historically weakened in the months leading up to the Federal Reserve’s first rate hike, as markets price in tighter monetary conditions ahead of time. But after the first hike, the pattern has tended to reverse.
Across the historical tightening cycles represented in the chart:
- 6 months before the first hike: gold averaged −2.50%
- 3 months before: −1.09%
- 1 month before: −0.21%
- 1 month after: −0.50%
- 3 months after: +4.22%
- 6 months after: +5.84%
The key point is that markets are forward-looking. By the time the Fed actually raises rates, a significant part of the tightening expectations may already be reflected in gold price
