When key interest rates rise, the gold price depreciates. That is an undeniable mechanism in the capital markets. But when does the gold price depreciate, and by how much? And how long does the impact of higher interest rates last? A recent analysis on the charting platform TradingView examines gold price developments one month, three months, six months and one year after the start of a Fed rate hike cycle. In total, ten such cycles from 1974 to 2022 were analyzed.
Quick rebound in 70 percent of cases
Across all ten cycles analyzed, gold’s performance one month after the rate hikes was still negative on average, at -0.7 percent. In 70 percent of all cases, however, the average was positive at 5 percent. One year later, gold’s performance was likewise positive in 70 percent of the cases analyzed, with a slightly higher average of 6.1 percent. The individual values varied widely, though. While gold’s performance stood at 35.8 percent one year after the start of the 1972 cycle, the gold price had depreciated significantly one year after the start of the 1980 cycle, with a performance of -37.65 percent. The significance of the analysis by the charting platform TradingView is limited. Other factors influencing the gold price were not taken into account; the analysis assumed a ceteris paribus scenario.
Key interest rate hikes often priced in months ahead
The Fed’s current rate hike, the first since 2023, has so far had little impact on the gold price. This is consistent with a 2021 study by the gold industry association World Gold Council on the relationship between key interest rate hikes and gold price movements. In analyzing a total of four Fed rate hike cycles from early 1994 to late 2015, it emerged that the average gold price suffered most six months before the respective hiking cycle began, not only in absolute terms but also relative to the US equity market.