Just as we expected, gold is rallying after the Fed’s rate-hike announcement. If past form holds true, we’re in for months of a very profitable uptrend.

But don’t count your money yet, as there’s at least one event that could derail the move.

March 17, 2022

Dear Fellow Investor,

Fittingly for St. Patrick’s Day, the screen is green.

Gold’s up about $10 as I write, having traded as much as $21 up earlier in the session. Combined with yesterday’s $9.00 gain after the official market close, and that’s a nice move.

Not only is gold climbing, but silver and the associated mining stocks are also rising nicely after the Federal Reserve unsurprisingly announced a quarter-point rate hike yesterday.

This kind of a reaction may seem counter-intuitive (after all, why would central bank tightening be bullish for gold?), but it was widely predicted because of the track record of such events.

You see, history shows that the initial rate hike in a Fed tightening cycle has often sparked a major gold rally. The most famous example of this occurred in December 2015.

In that instance, gold popped about $27 higher immediately in the wake of the Fed’s decision on December 16, 2015 to begin raising interest rates off of zero. That initial quarter-point hike wasn’t much, but it was a signal to those who had been shorting gold that the trade was over.

Having bought the rumor, they sold the news and relieved the selling pressure on the metal.

The key here is that this wasn’t a short-term, knee-jerk reaction. It sparked a nearly eight-month rally in gold, as you can see below.

Importantly, silver and the junior mining stocks leveraged this move in gold, yielding small fortunes for Gold Newsletter subscribers over the following months.

It was a great time to be a gold bull.

Hopefully, we’re going to experience a repeat performance in the months ahead. While that’s my expectation, there are some factors that could derail the rally.

Foremost of these, of course, is the outbreak of peace in Ukraine.

Unlike that other outbreak we’ve endured over the past two years, this one would be decidedly good news. And while gold and silver would take it on the chin once there’s some resolution to the crisis in Ukraine, I think the reaction will be short-lived and the monetary factors in favor of the metals will soon regain dominance.

In fact, that may be happening right now. Gold lost about $150 from the intra-day crisis peak to the recent lows, and this was in reaction to inklings of a potential negotiated resolution to the Russia-Ukraine war.

Events are so fluid that today’s good news can be replaced by horrific reports within moments, so there’s no telling if things will get better or worse in Ukraine. But if the market has already discounted an acceptable ending, then the upcoming correction in gold might not be too harsh.

In any event, my view is that the monetary issues are so powerfully bullish for gold, with the Fed embarking down a dead-end road toward supposed policy normalization, that they will drive the price of the metal higher for months and years to come.

One reason why this cycle should exceed the post-2008 event in both duration and degree is that inflation has now become entrenched in the global economy. Rather than being isolated in assets, the deluge of money printing and fiscal relief has broken through the financial market levees and inundated the broader economy.

This won’t end soon...or well...for central banks trying to stem the tide.

For now, the pattern of a rising gold price following an initial Fed rate hike remains intact. Even though the current trend is just a few hours old, this is highly encouraging.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference