It's dangerous to trade a market you don't understand. Those who do understand it easily confuse you into doing something stupid.
Because interest rates are set by the free market, not by the Federal Reserve--let's get real. Climbing interest rates mean one thing: there is increasing demand for capital, and that only happens in an increasingly booming economy. Banks can raise interest rates for one reason and only one reason: people will pay it. ...when demand for bank cash is strong.
What does that have to do with gold prices?
Strong demand for bank cash = lots of bank printing = increasing paper cash supply = high prices for everything, including gold. Inflation. That is why the late 1970's inflationary debacle was accompanied, not by 0% rates, but by 22% interest rates.
I guaranty you that a hike in Fed rates will send amateur gold traders a sell signal. Since gold is currently a pumped band wagon, that's of lot of sellers. In fact, sustained climbing interest rates, a sign of intensifying inflation, are exactly what smart gold traders are attempting to anticipate.
Now, the truth is, any rate hike in the near future (before 2012ish) will be done for political reasons, it'll be counter market direction, and thus will become massively deflationary and laughably unsustainable. Such a foolish act in the face of no borrowing will result in a quick return to 0% interest rates, will intensify our global depression, and will drop prices even farther.
So in reality, this particular rate hike (not to be confused with genuine and sustained rising interest rates) will be bad for gold prices, along with all prices, because it will help bring down the house.
But amateur gold traders will have no idea why or what happened to them. They'll think higher interest rates are what crushed them. So they will miss the real golden opportunity to buy gold after the price has bottomed, when interest rates actually do begin to climb away from 0% in a sustained manner, indicating that there is increasing demand for inflationary bank cash.
Then again, that lesson is probably best passed to our children.