Gold Defies Expectations: Rate Hike Has Little Impact on Prices

Gold prices have been largely unaffected by the expected Federal Reserve rate hike on September 16, despite market expectations suggesting it should send gold lower. The current price of gold sits at around $4,306 an ounce, down about 1% from this morning's open.

Historically, a rate hike would typically lead to higher real yields, making gold less attractive as an investment due to its non-yielding nature. However, since 2022, the relationship between interest rates and gold prices has weakened, with central banks becoming a significant source of demand for gold.

Central banks have been buying large quantities of gold, with over 1,000 tonnes purchased in each of 2022, 2023, and 2024, according to World Gold Council data. This buying is not primarily driven by interest rates, but rather a desire to diversify away from currency and sovereign counterparty risk.

The fact that gold prices have continued to rise despite the expected rate hike suggests that investors are increasingly looking at gold as a store of value and a hedge against inflation, rather than just a short-term investment opportunity. As such, while a surprise move or more hawkish statement from the Fed could still push gold lower in the short term, it is unlikely to reverse the long-term trend.