Why does gold tend to rise when US interest rates fall?
The three channels, and when the relationship fails.
Short answer
Gold pays no yield, so when US rates fall the cost of holding it compared with bonds and deposits drops, and the dollar often weakens, which lifts demand for it. It is a tendency, not a fixed rule: gold can rise alongside higher rates when other forces, such as central bank buying or fear of crises, are stronger.
The three channels
- Opportunity cost: holding gold means giving up the interest a deposit or bond would pay. The lower that interest, the lower the cost.
- Real yield: the interest rate minus inflation. When inflation runs above the rate, the real yield turns negative, an environment that has tended to favour gold.
- The dollar: gold is priced in dollars, and lower US rates often weaken the dollar, making gold cheaper for holders of other currencies.
When the relationship fails
In recent years gold has risen during periods when US rates were rising too, helped by heavy central bank buying and safe-haven demand in times of crisis. So interest rates alone do not explain gold's moves, and a decision should not rest on the rule that lower rates mean higher gold.
Markets also move on expectations before the decision itself, so a rate cut may already be in the price weeks before it is announced.
How to follow the drivers
Federal Reserve decision dates and US inflation data are on the economic calendar page in your device's time, Arab policy rates have their own page, and gold's state in our free read is on the gold today page.
Related questions
Does gold always rise after a rate cut?
No. The cut may already be expected and priced in, and other forces such as a strong dollar or easing market fears can outweigh it.
What is a real yield?
It is the interest rate minus the inflation rate. A 4% rate with 3% inflation means a real yield of about 1%.
Do you publish a gold price forecast?
We publish no price objective. We publish gold's state in our free read in a single word, and the levels we watch for subscribers.
This page explains well-known economic relationships; it is neither a forecast nor a prompt to trade.