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Where Is Gold Headed When Interest Rates Start Rising?

Wayne Duggan

Gold selling has accelerated since Donald Trump’s surprise U.S. election win.

The SPDR Gold Trust (ETF) (NYSE: GLD) is now down 4.4 percent since Election Day and 8.3 percent in the past three months. In that same time, the Market Vectors Gold Miners ETF (NYSE: GDX) is down 30.2 percent.

Much of the gold selling is related to fears that the Federal Reserve will once again begin raising interest rates starting in December. A post-election Reuters poll found that 85 percent of economists still expect a December rate hike.

However, rising interest rates may not be as bad for gold as investors are fearing.

Benzinga looked back at how gold prices fared during all six of the Fed tightening cycles in the past 30 years and found that gold averaged an 11.2 percent gain throughout these cycles. In fact, gold prices delivered positive returns in four out of the last six tightening cycles.

In the most recent tightening cycle from June 2004 to August 2006, gold prices soared 56.9 percent.

Despite the post-election selloff, gold is actually performing very well in the current cycle as well. Since the beginning of December 2015, gold prices are up 19.4 percent.

In the one week of trading following the election, levered gold ETFs have been extremely volatile.

Since the election, the Direxion Shares Exchange Traded Fund Trust (NYSE: NUGT) and Direxion Shares Exchange Traded Fund Trust (NYSE: JNUG) are down 31.2 percent and 31.6 percent, respectively. At the same time, levered gold inverse ETFs Direxion Shares Exchange Traded Fund Trust (NYSE: DUST) and Direxion Shares Exchange Traded Fund Trust (NYSE: JDST) are soaring in the past week, up 27.9 percent and 28.1 percent, respectively.

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