By raising its key interest rates again on 27 October, the ECB has put the gold market back in the spotlight. Indeed, in situations of economic crisis and inflation, it automatically becomes the attractive market to invest in.

However, how can we explain the fact that the ECB's repeated rate hikes are having such an impact on the gold market?

What is the historical price of gold when the ECB raises its key interest rates?

Historically, gold represents a value of stability and security. This means that it is an asset that is not subject to inflation. Nevertheless, when the ECB raises its key rates, it is to fight against the inflation that our societies are experiencing today.

Buying gold therefore becomes an unstoppable solution to the generalized price increase, since gold, because of its finite nature, cannot be subject to inflation.

As a result, many investors decide to withdraw their money from the stock markets when the ECB's key interest rate hike is announced in order to buy precious metals and protect themselves against inflation.

What are the consequences of the ECB rate hike on the gold market?

First of all, it is important to note that the gold quotation did not move on the announcement of the ECB rate hike, while the European stock markets fell. What does this mean? That gold is indeed an asset that is resistant to the global economic context and that its status as a "safe haven" makes sense.

How can this be explained? It is very simple. When key interest rates rise, investors tend to withdraw their money from the stock market to buy gold.

As a result, the price of this precious metal rises, which increases its price and prevents it from keeping up with inflation.

How to anticipate the consequences of the ECB rate hike?

Anticipating the ECB's key interest rate hike is like protecting yourself against inflation.

However, to protect yourself against inflation, you need to invest in assets that are not subject to inflation. The list of such assets is quite short: gold, commodities and companies that have a monopoly in their field.

There are not many companies that have a monopoly and they do not have a complete monopoly, and commodities are currently locked up in foreign countries.

The yellow metal remains, again, the simplest and safest investment.

This makes the precious metal even more interesting for individuals who want to invest in these risky times. 

Thus, not only is gold not negatively affected by inflation, but it benefits from the following mechanism: when inflation rises, real interest rates (interest rates minus inflation rates) fall, which causes the price of gold to rise.