It should be clear that the Fed’s tightening is bearish for gold, shouldn’t it? Our today’s about the history of the Fed’s tightening and its impact on the macroeconomic variables and the gold prices undermines that popular belief. We invite you to read it and draw precious metals investment conclusions from it.

We often repeat that investors should look deeper and they should not abstract from the broader macroeconomic context. So we invite you to analyze the history of the Fed’s tightening cycles, taking into account their impact on the most important macroeconomic variables. And, of course, the gold prices.

Let’s look at the table below, which shows how the federal funds rate and other key indicators changed during the Fed’s tightening cycles. As one can see, the CPI annual rate rose 1.7 percentage points during the average tightening cycle. At first glance, it may question the Fed’s ability to curb inflation. However, there are some time lags and sometimes inflation indeed declined later. Another issue is that the rise in inflation is the very reason of the tightening, so the positive value shouldn’t be surprising. What’s important here is that inflation has risen much more during the current tightening cycle. Two interpretations come to mind. First, with stronger inflation dynamics, the Fed will be more aggressive. Second, with such relatively strong increase in inflation, further upward moves – both in the CPI and the federal funds rate – are somewhat limited. Clearly, the latter narrative is more gold-friendly. But which one is true? We believe that Powell might really be more hawkish than markets expect, but we don’t expect revolution. Keep in mind that inflation started from the very low level.

_{Table 1: History of the US tightening cycles in the macroeconomic context (change in the federal funds rate, change in the annual CPI rate, change in the civilian unemployment rate and change in the 10-year Treasury yields)}