With the Federal Reserve hiking rates last Wednesday and indicating additional potential hikes, many analysts are predicting a strengthening dollar. The logic behind these predictions seems relatively sound - raising rates could attract increased dollar deposits, raising demand for the dollar and strengthening it against a basket of world currencies. The logic continues that for USD-based commodity investors, such an eventuality would prove negative, the assumption being that because most globally traded commodities, such as gold, are denominated in USD, an increase in the value of the USD would decrease the number of dollars required to buy gold, decreasing the dollar price of gold. For purposes of this article we will assume an inverse relationship between USD and gold.
Somewhat surprisingly, a cursory examination of historic data fails to support much of any relationship between FED interest rate hikes and the performance of the USD. An analysis of FED rate… Read More …
