What Happens to Gold 12 Months BEFORE Interest Rates Rise

What happens to gold in the 12 months before interest rates go up will probably surprise you…

There is a very high chance that the Federal Reserve will raise interest rates in 2015 (based on what they said in June).

Logic would tell you to sell gold when rates go up, not to buy it. In fact most people think that gold will crash when rates rise.

However, history tells a different story.

Let me explain. Take a look at this table below:

Gold and interest rates

The above table shows 40 years of data and you can see what happens to gold about one year BEFORE we move from a period of falling or steady interest rates to rising rates.

The numbers do not lie…

History shows that the biggest gains in gold come approximately one year BEFORE the Fed raises rates.

This goes against logic – and that is because the markets are not always logical.

Buying gold one year before the Fed raises rates leads to incredible gains. On average gold increases 20% – and the biggest gains are in the first 6 months!

For example, see this chart of interest rates 10 years ago:

US interest rates 2001 to 2004

In July 2004, the Fed raised interest rates for the first time after many years of falling and steady rates.

Now see what happened to gold one year before rates went up:

Gold 2001 to 2005

You will see that one year before rates went up in 2004, gold soared from about $300 to $400. That is a gain of 33%!

The truth is that, contrary to logic, rising rates do NOT hurt gold. Quite the opposite in fact: we want to own gold before rates rise.

Based on history and given the fact that the Fed will likely raise rates in 2015, we should look for “setups” to buy gold now.

In the next update this week I’ll show you exactly when that buy point will be for gold this year – and what we should expect for gold in September.

Hope it helps and good investing!

Alessio Rastani is a stock market trader at www.leadingtrader.com

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