Gold has been battered lower in recent months as gold-futures speculators fled in dread of the Fed-rate-hike boogeyman. As universally expected, the Fed’s 5th rate hike of this cycle indeed came to pass this week. When gold didn’t collapse as irrationally feared, the cowering futures traders were quick to start returning. Past Fed rate hikes have actually proven very bullish for gold, and this latest one will be no exception.

Back in early September, gold was sitting pretty near $1348. It had rallied dramatically out of its usual summer-doldrums low in its typical major autumn rally, blasting 11.2% higher in just 2.0 months. But even way back then, Fed-rate-hike fears for the FOMC’s December 13th meeting started creeping in.  When gold peaked on September 7th, federal-funds futures implied December rate-hike odds running just 32%.

Over the next 8 trading days leading into the September 20th FOMC meeting where the Fed birthed its unprecedented quantitative-tightening campaign, those rate-hike odds climbed as high as 62%. That day’s FOMC statement and subsequent Janet Yellen press conference blasted the December rate-hike odds even higher to 73%. So gold slumped back down to $1300 as futures speculators sold in trepidation.

By early October as these futures-implied rate-hike odds hit 93%, gold fell as low as $1268. Over the mere one-month span where December rate-hike odds nearly tripled from 32% to 93%, gold dropped 5.9% on heavy spec gold-futures selling. That erased nearly 6/10ths of its autumn rally, which really weighed on sentiment. Gold still managed to stabilize around the $1280s in late October and November.

Starting early last month, federal-funds futures traders became so totally convinced the Fed would hike this week that their implied odds hit 100%. They stayed pegged at total certainty for 27 trading days in a row. Gold was able to stage a minor rally to $1294 surrounding Thanksgiving, but speculators resumed dumping gold futures in early December. Thus gold fell as low as $1242 leading into this week’s FOMC decision.

Gold-futures speculators have always deeply feared Fed rate hikes. Their rationale is simple and sounds logical. Since gold pays no interest or dividends, it will struggle to compete with bonds and stocks in a higher-yielding world following Fed rate hikes. Therefore gold investment demand will wane, leading to lower gold prices. Speculators always attempt to front run their foregone conclusion by selling gold futures.

This scenario has played out for three Decembers in a row now. The Fed kicked off this rate-hike cycle back in mid-December 2015 with its first rate hike in 9.5 years. A year ago in mid-December 2016, the FOMC made its second rate hike. And following two more hikes earlier this year, the Fed’s newest mid-December hike this week was the 5th of its current cycle. Gold-futures speculators sold aggressively into all.

So gold’s slump into this week on more Fed-rate-hike fears is certainly nothing new. The lead into this December FOMC meeting is starting to feel like that old Bill Murray movie Groundhog Day. So the key question gold investors need to ask today is how did speculators’ excessively-bearish gold-futures bets play out after the prior couple Decembers’ rate hikes? Did gold crumble in the face of higher rates as feared?

This first chart superimposes gold during this current Fed-rate-hike cycle over speculators’ collective long and short positions in gold futures. Gold is rendered in blue, and speculators’ total number of upside and downside contracts in green and red respectively. This gold-futures data comes from the CTFC’s weekly Commitments of Traders reports, which are published every Friday afternoon current to the preceding Tuesday.

Gold-futures speculators have long been utterly convinced gold’s mortal nemesis is Fed rate hikes and the resulting higher prevailing interest rates. They fervently believe a sterile asset like gold simply can’t compete in a rising-rate environment. And to their credit, these elite traders sure aren’t afraid to put their money where their mouths are. Their trading surrounding past December hikes illuminates gold’s path today.

Way back in December 2008, the Federal Reserve panicked and slashed interest rates to zero for the first time in its history. For years after that, top Fed officials talked about normalizing rates but never had the courage to start. But finally, in late October 2015, the FOMC started getting serious about ending its ridiculous ZIRP anomaly. The Fed warned it might “be appropriate to raise the target range at its next meeting”.

That would be December 16th, 2015. Since there hadn’t been a Fed rate hike in nearly a decade, the gold-futures speculators freaked out. Extreme selling erupted as they rushed to dump gold-futures long contracts while catapulting their short positions higher. So between mid-October and early December that year, gold plunged 11.4% to a major new secular low. Surely rate hikes doomed zero-yielding gold!