What You’ve Heard About Gold and Interest Rates Is Dead Wrong

29-Jul (CaseyResearch) — If the Fed does raise rates in September, it will be for the first time since 2006.

Conventional wisdom says that rising rates are bad for gold. The argument goes that gold doesn’t generate income. So when interest rates rise, people prefer to own bonds and dividend-paying stocks instead of gold.

But it turns out that’s dead wrong. The price of gold actually goes up when the Fed raises rates.

HSBC’s Global Research team found that the price of gold has actually risen the last four times rate hikes began. A recent article by The Reformed Broker explained…

History shows that gold prices also fall leading into a rate hike and generally rise, though sometimes with a lag, after the first rate hike… Investors are apt to unload gold in anticipation of tightening monetary policies. This negative pressure is sustained until the Fed announces a rate hike, which then eases the negative sentiment towards the yellow-metal. This explains the subsequent rallies in gold that occurred shortly after the Fed announced the first rate hike in the last four tightening cycles.

This is an important finding. Most investors assume that higher rates will hurt gold. But the data shows that rate hikes have actually been good for gold in the recent past.

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PG View: This is a topic we’ve covered in the past. With seemingly everyone still expecting the Fed to start its first tightening campaign in more than a decade sometime this year, perhaps gold owners should be looking forward to that day! And more importantly, taking advantage of the lower prices as paper gold owners fret over lift-off!