Gold's performance after past Fed rate hikes: What historical data shows

Detailed summary

Motilal Oswal analysis reveals gold delivers positive returns after US Federal Reserve rate hikes, despite near-term pressure from US inflation and hawkish policy.

Gold has historically delivered positive average returns over three and six months following the US Federal Reserve's first interest rate hike in a monetary tightening cycle, according to an analysis by Motilal Oswal Financial Services.

The analysis shows that gold generated an average return of 4.22% in the three months after the first rate hike, rising to 5.84% over six months.

The historical trend comes at a time when gold prices are facing pressure from expectations of further monetary tightening in the US.

On Thursday, November 12, spot gold fell below $4,000 per ounce, touching a more than one-week low after stronger-than-expected US inflation data and hawkish comments from Federal Reserve officials strengthened expectations of another rate hike next month.

Motilal Oswal's analysis, based on historical tightening cycles, shows that gold recorded an average decline of 0.50% in the month immediately following the Fed's first rate hike. However, its average returns turned positive over the subsequent three- and six-month periods.

Gold also remained under pressure in the run-up to the first rate hike. It declined by an average 2.50% in the preceding six months, 1.09% in the preceding three months and 0.21% in the month immediately before the policy move.

The win rate was 33% over six months before the first hike, 50% over three months and 33% over one month. Following the hike, it stood at 40% in the first month and 60% over both three and six months.

The analysis covers six observations for the periods preceding the first hike and five for the periods following it.

Spot gold fell 0.2% to $3,981.49 per ounce by 0310 GMT on Thursday (November 12), after touching its lowest level since November 4 earlier in the session. US gold futures for December delivery declined 0.3% to $3,987.50 per ounce, according to Reuters.

Opening of the article, excerpted from CNBC-TV18. To read the rest, open the article on the publisher's site.