How interest rates affect gold prices

Why interest rates matter for gold

The cost of holding gold. Money in a Treasury bill or a savings account earns interest. Money in gold earns nothing. When rates are high, owning gold means giving up more income, so some investors sell it or buy less. When rates are low, that cost shrinks.

Real rates matter most. What counts is the interest rate after inflation, known as the real rate. If a bond pays 4% and inflation is 5%, its real return is negative, and gold’s lack of income matters much less. Investors often watch the yield on Treasury Inflation-Protected Securities (TIPS) as a live measure of real rates.

The dollar. Higher U.S. rates tend to strengthen the dollar, and a stronger dollar makes dollar-priced gold more expensive for buyers elsewhere, which can weigh on demand.

The pattern in history

• The 1970s. Inflation ran ahead of interest rates for much of the decade, real rates were often negative, and gold rose about 36% a year from 1972 to 1979.
• The early 1980s. To break inflation, the Federal Reserve under Paul Volcker let short-term rates approach 20% in late 1980 and early 1981. Real rates turned sharply positive, gold peaked in January 1980, and it fell through most of the next two decades.
• 2013. When bond yields jumped on expectations that the Fed would slow its bond buying, gold fell 27.6% for the year.
• 2020. Rates were cut to near zero in the pandemic and real yields went deeply negative. Gold rose 24.2% that year.

RBC Wealth Management measured how closely gold tracked real yields from 2005 to 2021 and found a correlation of 84%, with gold rising as real yields fell.

Why the link weakened after 2022

In 2022 and 2023 the Fed raised its benchmark rate faster than at any time in decades, from near zero to a range of 5.25% to 5.5% by July 2023. By the old pattern, gold should have slumped. It didn’t: it ended 2022 roughly flat and rose 13.3% in 2023. RBC found that the correlation between gold and real yields fell to just 3% over those two years.

The main reason was buying by central banks. Their net purchases topped 1,000 tons a year for three straight years, about double the average from 2010 to 2021, according to figures RBC cites. The freezing of Russia’s central bank reserves in 2022 made some countries wary of holding dollar assets and more interested in gold, which has no issuer that can freeze it.

The Fed’s September 2026 rate hike

On September 16, 2026, the Fed raised its benchmark range by a quarter point, to 3.75% to 4%. It was the first increase since 2023, after three cuts in 2025. The Fed’s statement said “inflation remains elevated.” Oil prices were high at the time, after disruptions to Middle East supplies.

By then gold had already come well off its January record near $5,600 an ounce, trading around $4,300 in late September. Higher rates make gold’s lack of income more costly and tend to weigh on its price. But as 2022 and 2023 showed, rates don’t set the price on their own: the dollar, central bank demand, investment flows and geopolitics all matter too. Our guide to what moves gold prices covers the full list.

What this means if you own or want gold

• Don’t trade gold on a rate forecast alone. Even when the Fed does what markets expect, gold can move either way. Our guide to the spot price explains how quickly the price reacts.
• Watch real rates as well as headline rates. A hike that only keeps pace with inflation changes less than it seems.
• Remember why you hold it. If gold is in your portfolio to diversify, short-term rate moves matter less than the role it plays over years. See is gold a safe investment?

Frequently asked questions