Why does gold fall when interest rates rise?

Gold pays nothing while you hold it

Cash in the bank and government bonds pay interest. Gold does not.

When interest rates rise, holding gold means giving up more interest you could have earned elsewhere. Gold looks less attractive, so it often falls.

When rates fall, that missed interest shrinks. Gold looks better next to cash and bonds, so it often rises.

It is about expectations

Gold usually moves when expectations change, not on the day a rate decision happens. If everyone already expects a cut, the cut itself may barely move gold.

That is why US jobs and inflation data move gold so much. They change what traders think the Fed will do next.

Real rates

Professionals watch real interest rates: the interest rate minus inflation. If rates are 4% and inflation is 3%, the real rate is about 1%.

Gold has often done well when real rates fall, and struggled when they rise. More on bond yields.

When the textbook fails

In recent years, heavy gold buying by central banks has sometimes kept gold rising even while interest rates were high. Big buyers can outweigh the textbook.

Keep learning

• How does the Fed affect gold?

  Fed meetings, speeches, and why the tone matters as much as the decision.

  →

• Why do bond yields matter for gold?

  What bond yields are, and why gold watches them all day.

  →

• Does CPI affect gold?

  US inflation data, and why cooler numbers usually help gold.

  →