Popular opinion is that interest rate hikes are bearish for gold. Comparing the paths of interest rates and the yellow metal suggests otherwise, strategists at ANZ bank report.
Gold to hold up well
“Since 1970 the correlation has only been about 28% and is not considered significant. When broken down into rate-hike cycles, only once has gold finished lower. In fact, some periods have seen gold rise 30-40% higher.”
“Gold performs best when inflation is rising, rates are falling and the USD is weak. Rarely do these factors coincide, making gold’s fair value hard to assess. Our Gold valuation model suggests it is currently undervalued.”
“Persistently high inflation and a weaker USD could offset the fall in higher interest rates. Combined with safe-haven demand caused by geopolitical tension, gold may hold up well.”
See – Gold Price Forecast: XAU/USD to set a floor amid a wide variety of risks – HSBC
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