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Fed Rate Hikes Unlikely Threat to Gold – XAU/USD Moves Off Monthly Low

March 17, 2022 – Despite yesterday’s 25 basis points rate hike announced by the US Federal Reserve, gold has regained its positive traction and risen above $1,940.  Fed Chair Powell has indicated that additional rate hikes are under consideration in the coming months and the consensus is for a total of seven rate hikes by year’s end.

Contrary to the belief that an increase in interest rates is the death knell for non-interest-bearing gold, history proves this is usually not so.  A look at past rate hike cycles show that gold most often rose during these periods.  This is most likely the result of the incremental rate increases being significantly less than the real rate of inflation, as is the case now.

Compounding inflation’s effect of devaluing the USD vis a vis gold, the yellow metal is also benefiting as a flight-to-safety due to Russia’s invasion of Ukraine.  Investment flows into gold have been robust since the start of the Ukraine war. Evidence of investor sentiment can be measured by reports of more than 117 tons of gold added to ETF’s alone.

As of 09:35 Eastern Time the metals were trading at:

  • PMC Index $144.82 up $4.17
  • Gold $1943.90 up $35.90
  • Silver $25.38 up $0.90
  • Platinum $1021.20 up $18.30
  • Palladium $2450 up $108.20