Megaphone icon ETF Database is now VettaFi. Read More >
ETFdb Logo
ETFdb Logo
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • Entrepreneur ETF
    • Equity ETF
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Future ETFs
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Modern Alpha
    • Multi-Asset
    • Multi-Factor
    • Nasdaq Investment Intelligence
    • Portfolio Strategies
    • Retirement Income
    • Smart Beta
    • Thematic Investing
    • Volatility Resource
  • Database
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
    • ETFs Future-Forward 2021: An iShares Investing Symposium
    • Three Themes for 2021: An iShares & MSCI Investing Symposium
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Videos & Podcasts
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Gold & Silver Investing Channel
  2. How Will Gold Respond to a Tightening Cycle?
Gold & Silver Investing Channel
Share

How Will Gold Respond to a Tightening Cycle?

Evan HarpMay 10, 2022
2022-05-10

The Federal Reserve is raising rates to reign in record inflation, leaving many gold investors to wonder what this means for gold. Historically, gold thrives in an inflation or stagflation environment. However, some experts, such as MKS PAM metals strategist Nicky Shiels, see two courses for the yellow metal depending on Fed action.

“As the markets continue to digest whether a 50/50/50x hiking profile (vs. 50/75/50x over the next few meets) is actually enough to tame inflation, induce a recession etc., it’s worthwhile to take a step back and assess just what Gold did during past slow and fast Fed hiking cycles. There is a lot of asymmetrical risk depending on whether the Fed hikes quickly (as seen in years 1980/1987/1994) or slowly (years 2016/2004/1999/1977),” Shiels said to Kitco.

Shiels noted that a “fast” hiking Fed could trigger a downward trend in gold prices, defining a fast hiking cycle as one where the Fed raises rates by more 50bps initially and then exceeds 300bps in the first year. On the other hand, Shiels predicted tremendous upside for gold in a slow Fed hiking cycle.

“A slow Fed hiking cycle is very bullish gold (especially after 1year). Gold hardly falls below levels once the Fed starts on a slow hiking path (the max average drawdown is -2%). On average, 5years on its up 115%, which in today’s terms is equivalent to gold over $4,000 in 2027,” Shiels said. “Slow hiking cycle is one with incremental 25bp hikes, smaller total no. of hikes within the 1st year and/or relatively lower terminal funds rate.”

The Fed will be leaving clues as to whether this cycle is slow or fast, and traders can look at market expectations around real rates to unearth these clues. Much will also depend on the outcome that the U.S. central bank wants to achieve. If it wants to tame inflation, a slow hiking cycle is going to be in the cards. If it wants to kill it, it’ll be a fast cycle.

One positive sign is gold’s continued strength despite a rough couple of weeks. Shiels noted, “Gold is now down three weeks in a row, the longest run of losses since December as the bear market in bonds (and equities) continues driving a rally in nominal and real yields. However, the extent of golds declines … is getting shallower, especially in the face of such large repricing in yields, which is an early sign of being constructive; if this really was a bear market, gold should be well below $1,850, and it isn’t.”

Investors may want to increase their exposure to gold in these rocky times. The Sprott Physical Gold Trust PHYS offers direct exposure to the yellow metal. For a gold equities play, investors can look at the Sprott Gold Miners ETF (SGDM ) or the Sprott Junior Gold Miners ETF (SGDJ ).

For more news, information, and strategy, visit the Gold & Silver Investing Channel.

Loading Articles...
Help & Info
  • Contact Us
  • Mission Statement
  • Press
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © ETF Flows LLC
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

Equity ETF Channel

Retirement Portfolio Redux: Is the 60%-40% Portfolio Dead?

Debbie CarlsonOct 22, 2020
2020-10-22

With the 10-year U.S. Treasury yield hovering below 1% and Federal Reserve Chairman Jerome Powell...

Equity ETF Channel

Portfolio Diversification Isn't Dead, It Was Just Sleeping

Debbie CarlsonOct 15, 2020
2020-10-15

Investors could be forgiven to think there was no reason to invest outside of the U.S. for the...

}
X