The gold price zoomed from $700 in late 2008 to the $1900 level by September 2011, only to crash down to the $1050 area in late 2015 with the FFR at basically zero the entire time. In fact, the gold sector did not begin a significant move higher until a month after the FOMC raised rates in December 2015, beginning the first rate hike cycle since June, 2004 through June 2006.
What did the gold price do during the two years of the last rate hike cycle when the Fed raised rates from 1.00% to 5.25%? Bullion rose along with the FFR from $400 to $725. In fact, the FOMC hiked 17 consecutive times at each meeting while gold just kept moving up with the FFR.
Likewise, the FFR in July 1976 was at 4.75%, while the gold price was bottoming at the $100 level. The FFR rose to 14% by January 1980 as bullion raced to $850 in less than four years, right along with historically high interest rates.
What we can learn from these historic similarities of rising rates being bullish for the gold sector is that higher interest rates assist in reviving inflation for the future. This is what the market has begun to price in after the bear market in the miners ended on January 19th in 2016.
Reference: Kitco
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