Ironically the asset class that will benefit most from rate hikes is the one traders least expect, gold. The conventional wisdom today believes gold is going to get wrecked by rising rates since it has no yield. But just the opposite has proven true historically! Gold is an alternative asset, and demand for these critical portfolio diversifiers soars when conventional stocks and bonds are struggling. Like during rate hikes. During the Fed’s last rate-hike cycle between June 2004 and June 2006 where the Federal Funds Rate was more than quintupled to 5.25%, gold actually soared 50% higher! And in the 1970s when the Fed catapulted its FFR from 3.5% in early 1971 to a crazy 20.0% by early 1980, gold skyrocketed an astounding 24.3x higher! Higher rates really hurt stocks and bonds, rekindling investment demand for alternatives.
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