Gold Thrives in Rate-Hike Cycles – December Fed Rate Hike?
Gold’s deep new secular lows of recent weeks were fueled by American futures speculators’ overpowering fear of Fed rate hikes. They believe zero-yielding gold is doomed in a higher-rate world, so they dumped gold futures at astounding record rates. The problem is history proves just the opposite, that gold tends to thrive during Fed-rate-hike cycles. This revelation is a super-bullish near-term omen for gold.
Some brief context is essential to frame gold’s apparently dire predicament today. Late July saw gold crushed to new secular lows by a record extremegold-futures shorting attack brazenly executed to blast through long-side stops and foment panic selling. But this burst selling soon fizzled, leading to a major gold bottom in early August. Over the subsequent few months, gold carved an impressive new uptrend.
By the middle of the day on October 28th, gold had climbed all the way back up near $1182 which was 9.0% above its artificial early-August low. But that very day the Federal Reserve’s Federal Open Market Committee that makes monetary policy threw the markets an unexpected curve ball. The FOMC inserted a surprise statement sentence warning “whether it will be appropriate to raise the target range at its next meeting”.
This shocked traders, as it was the first time the Fed made a direct reference to a possible imminent rate hike since it first implemented its zero-interest-rate policy ages ago in December 2008. This catalyzed the already-bearish American gold-futures speculators into selling with reckless abandon. Starting that very day, gold would fall for 14 of the next 15 trading days for an 8.4% total loss in just several weeks.
This gold-futures selling was off-the-charts astounding, occurring at extreme record rates far beyond anything ever witnessed before. That span since the Fed’s hawkish late-October surprise saw the most single-week speculator gold-futures short selling ever by huge margins. Multiple-week records of gold-futures selling by this same group of traders were also shattered, as explored in depth in my essay last week.
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