Gold and currencies reacted in a mixed way after the Fed’s announcement to hike interest rates with 25 basis points. Gold remains firm above its recent lows.
It was not only gold, but also miners which reacted after the Fed’s announcement. As gold miners are known to lead the precious metals complex (higher and lower), they sent the ultimate confirmation that a rate hike was already priced in.
Markets have been anticipating an interest rate hike for more than 30 months now, as evidenced by rising short term yields and a continuous decline in gold prices. We believe that the decline is largely overdone, as the U.S. Fed remains committed to achieve its inflation target.
Moreover, investor sentiment towards gold has reached the lowest levels in three decades, only seen back in 1998 and 2013, which we consider a strong contrarian indicator. This is the time to accumulate oversold assets, like gold and miners!