The Fed is going to raise rates. Historically, that’s been good for gold and silver

After years of rate hikes attempting to combat post-COVID-19 inflation across the world’s economies, investors are preparing for the Federal Reserve to reverse course as signs of a weakening job market appear.

The reversal is sure to cause some uneasiness among investors. Still, according to a recent report from VanEck Portfolio Manager Imaru Casanova — this could be a massive opportunity for gold and silver.

Patience pays off after 500 days

During interest rate unwindings in 2001, 2007 and 2019, investors were rewarded heavily for choosing gold as the Federal Reserve began cutting rates.

In the 500 days following the first cuts, investors were rewarded to at least 20% cumulative returns in the 19-month period, Casanova’s report showed.

Released by JP Morgan, this chart shows the performance of gold 250 days and 500 days following the Federal Reserve’s first rate cut.

July’s gains come after geopolitical tensions rise

Casanova noted that gold’s strong performance in July coincided with a 1.6% decline in NASDAQ pricing as tensions worsened in the Middle East. Net inflows also bolstered precious metal prices, with a 1.8% increase reported in ETF holdings during the month.

Central banks appear to be just as wary of the world economy as gold and silver investors typically are, as they continue adding gold to reserves. Casanova said there is still room to grow, and the banks appear to be underinvested in gold despite the large-scale additions in recent years.