A Post-Fed Tale of Oil and Gold

If history is any guide, crude oil could be in for a bounce and gold may see more speed bumps, should the Fed raise interest rates in September

Jul 29, 2015 at 10:07 AM
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The recent uncertainty in Chinese markets has sent commodity markets tumbling -- with oil currently trading south of the round-number $50 mark, and gold lingering near levels not seen in five years. Today, the Federal Open Market Committee (FOMC) will release its latest monetary policy decision, and while not many are expecting an interest-rate hike to surface, most are predicting hints toward a September rate hike. So what does this mean for the state of markets?

As noted earlier, the S&P 500 Index (SPX) has historically seen short-term trouble in the wake of an interest-rate hike, but has stabilized in the long run. Along similar lines, Schaeffer's Senior Quantitative Analyst Rocky White ran the numbers for the commodity markets, and if past is precedent, oil could have a fighting chance, while gold may be facing some additional struggles.

Looking at the charts below, since 1980, there have been eight times the FOMC raised interest rates for the first time in at least a year. In the one month following the hike, crude averaged a gain of 0.6%, and was positive half of the time. Going out one year, the gain widened to 1%, although crude was positive less than two-fifths of the time.

Compare this to a one-month anytime return of 0.5% for the SPX -- and a one-year anytime return of 6.4%. In both time frames, the SPX was positive roughly half of the time.

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Turning to gold, the data goes back to 1975, creating 10 signals in which the Fed raised interest rates for the first time in at least a year. In the one month subsequent to the central bank's action, gold averaged a loss of 1.1%, and was positive only one-fifth of the time. Widening the time frame to one year, the malleable metal returned an average gain of 5.9%, and was positive 50% of the time.

This lagged the anytime returns for the SPX, which averaged a one-month gain of 0.6%, and was positive half of the time. On a 12-month basis, the broad-market barometer logged an average return of 7.9%, and was positive 56% of the time.

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