- Between 2007 and 2021, gold was highly correlated with real interest rates.
- Since then, the power of real rates to explain movement in gold price has become essentially zero.
- Interest in gold runs across retail and institutional, private and public investors.
- Inflation and fiscal fears, and USD weaponisation explain rising interest in gold.
- Trade war and global security concerns are playing a lasting role as well.
Related Insights
Commentary: Gold and geoeconomics
Gold should be well under USD2000/ounce, but it is at USD3350. Why should it be at sub-$2000 and why is at $3350? Let’s go with the first point. Historically, gold, a store of value that yields zero, has been negatively correlated with real interest rates. Using 15 years of data, spanning 2007-21, we find a sizeable and statistically significant negative relationship between gold and real interest rates. The log of gold price finds a 0.83 linear fit with real interest rate, which we calculate as the difference between 5-year treasury yield and market-based measure of inflation expectations. Going with this model of gold price, the prevailing real interest rate of about +1.6% should be associated with gold price at about USD1600/ounce.
But this model is based on pre-2022 data; a regime change has taken place in gold price determination, it seems. From 2022 onward, as the Fed began hiking rates to combat inflation, gold defied the historical trend. Instead, of correcting when yields rise, the price of gold has kept climbing since then.
Running the same relationship using data from the beginning 2022 to May 2025, we find an entirely different set of estimates. There is no statistical significance whatsoever; the power of real interest rates to explain movement in gold price has become essentially zero.
From gold analysts to Large Language Models, the reasons for gold’s anomalous rise in recent years are well articulated. Investors, retail and institutional alike, are fearful of inflation’s return; they are wary of the weaponisation of the USD; they are concerned about the US fiscal situation; they have heightened concerns about geoeconomic developments, from trade war to China-US rivalry; and they are worried about various global security hot spots.
Not one factor can explain gold’s relentless rise, but put together the full list, it becomes clear why a zero-yielding asset can do well when yields are rather high. Even if markets scale back expectations of Fed rate cuts in the coming months, chances are that gold will remain in favour. Gold shines during times of uncertainty; there are no signs of that changing soon.
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