Gold extended its two-year trend of higher lows
Gold’s price action in March was very constructive, even though it only advanced $6.62 (0.5%). Since the Fed began raising rates in December 2015, the gold market has shown weakness in the weeks ahead of each rate decision. This pattern was repeated once again, as the low for the month was $1,306 per ounce on March 21, the day the Fed announced its sixth 0.25% rate increase since it began raising rates. The Fed-induced lows in 2017 were in the $1,200 to $1,240 per ounce range, whereas the March 2018 low ($1,306) was much higher, extending the positive trend of higher lows to over two years. Gold was propelled to its high for the month of $1,356 per ounce on March 27 following the Trump Administration’s announcement of tariffs targeting Chinese goods. China’s immediate response was modest in comparison and gold finished the month at $1,325 per ounce.
Gold prices rebounded after the Fed rate hike
In December 2015, the Federal Reserve raised its target funds rate for the first time since 2006. Subsequently, the Fed increased its benchmark rate six times to a current range of 1.50% to 1.75%.
Steady rise in gold prices
Ever since the Fed started its rate hike cycle, gold (GLD)(IAU) has seen a steady upside. When the Fed hiked its rate in December 2015, gold (GDX) was hovering at around $1,062.9 per ounce. When the second rate hike was effected in December 2016, gold (GDXJ) prices edged up to $1,187.5 per ounce. As the chart below shows, with every Fed rate hike since 2015, gold prices have rebounded to make higher gains. The cycle continued with varying degrees of intensity until the last hike in March.
As of the end of March, gold (SGOL) prices are up 24.9% since December 2015, when the Fed initiated its first rate hike after the financial crisis. Apart from the effect of a rate hike, gold also moved higher, mainly due to a weakness in the dollar and rising demand from investors as a hedge against surging consumer prices.