The whole world assumes that the US Federal Reserve will have to start lowering interest rates before the gold price can skyrocket. But that’s not entirely true. In fact, history shows that the Fed simply needs to reach the end of its rate hike cycle for the effects to be visible in the form of a rising gold price.

Development of the Federal Funds Rate in the last 25 years Source: tradingeconomics.com

Gold price in the last 25 years: A gold price breakout always followed the peak of interest rates Source: stockcharts.com

Fed has reached the peak of its interest rate hike cycle: Time for gold to take off Historically, gold tends to take off immediately after the end of a US Federal Reserve interest rate hike cycle.

As a comparison of the two charts above clearly shows, gold experienced a massive increase when the Fed reached the peak of its interest rate hike cycle at the beginning of this century and subsequently lowered interest rates. The same happened before the Fed had to lower interest rates during the real estate and financial crisis. And again at the end of the second decade of our century.

Currently, it seems that the Fed has once again reached the peak of its current interest rate hike cycle, which is a reason for another surge in the price of gold.

Many other reasons speak for gold In addition, there are a number of other good reasons to expect a rising gold price:

Central banks are buying gold massively Currently, this is one of the most important support factors for the gold price. Last year, the massive purchases by global central banks (especially those in emerging markets) helped the gold price reach new all-time highs despite monetary resistance. The buying interest of central banks will continue.

Gold performs well in recession phases The German economy is already in a recession, the British economy recently joined, as did the Japanese economy. And China’s growth is also lacking. Sooner or later, the US economy will be no exception. In the last half century, there have been eight recessions in the US and in 75% of cases, gold has outperformed the S&P 500 in these scenarios.

Gold is undervalued Speaking of the S&P 500: It is currently not only overvalued in terms of its enormously high valuations, but also in comparison to gold. A look at the S&P-Gold ratio clearly shows that gold is currently trading at one of the most favorable levels in its history compared to the US stock market:

S&P500/Gold ratio: Gold is cheap Source: macrotrends.net

Conclusion: Get on the gold train The environment for gold is great. Gold is cheap and central banks around the world are buying it for hedging and diversification. Once troubled western investors also jump on the gold train, it will take off. But by that time, I will already be sitting in the warm and safe gold train compartment. Because I am buying gold and selected gold stocks now and in time. I also recommend this to you.