Gold in Fed Interest Rate Hike Cycles

Gold suffered heavy selling in early March leading into the Fed’s latest rate hike.  Speculators frantically dumped gold futures ahead of the Fed’s meeting as implied rate-hike odds soared.  This is nothing new.  This key group of traders has long feared Fed-rate-hike cycles, convinced they are the mortal nemesis of zero-yielding gold.  But this view is highly irrational, as history proves gold actually thrives in rate-hike cycles! The Federal Reserve’s primary and dominant tool for setting monetary policy is its target for the federal-funds rate.  Commercial banks are required to maintain reserve balances at the Fed, with necessary levels fluctuating daily based on each bank’s underlying business activity.  So banks with surplus reserves can lend them on an overnight basis to other banks running deficits through the federal-funds market.

First published here: Gold in Fed Interest Rate Hike Cycles