Fed Rate Hikes Weigh on Gold Prices Amid Stronger Dollar

The US Federal Reserve's interest rate hikes have far-reaching implications for global markets. When the Fed raises its benchmark interest rate, borrowing becomes more expensive across the US economy, and higher rates make US government bonds and fixed deposits more attractive.

This can create a headwind for gold prices because gold pays no interest or dividend, making it less appealing in comparison to interest-bearing assets. However, there are exceptions, during several Fed hiking cycles, including parts of 2022 and 2023, gold held firm or even climbed.

The relationship between the Fed's rate hikes and gold prices is not straightforward, as it depends on real interest rates, which are influenced by inflation. If the nominal rate rises but inflation remains high, the real rate can remain negative, making gold attractive because everything else is eroding in purchasing power terms.