Gold Can Rise With Interest Rates, History Shows

The idea that gold prices always fall when interest rates rise is a common belief, but history shows it’s only partly true. The textbook view suggests that since gold doesn’t pay interest, higher rates should push investors toward bonds and savings accounts, reducing gold’s appeal. However, reality is more complex.

For example, gold surged in the late 1970s as the Federal Reserve raised rates from single digits to nearly 19%, and gold rose from under $200 to over $800 per ounce. Similarly, gold climbed in 2022 and 2023 despite the Fed’s aggressive rate hikes, which took the federal funds rate from near zero to 5.33%. These examples challenge the conventional wisdom that rising rates always hurt gold.

The key factor driving gold isn’t the headline interest rate but real yields, the nominal rate minus inflation. When inflation outpaces rate hikes, real yields stay negative, making gold’s lack of yield less of a disadvantage. Additionally, aggressive rate hikes can trigger financial instability, turning gold into a safe-haven asset.

Other factors influencing gold during rate hikes include the pace of hikes, dollar strength, and central bank buying. Foreign central banks have been buying gold at record levels, providing steady demand. For long-term investors, gold’s role as insurance against currency debasement makes rate cycles less relevant.