Many analysts and investors adhere to the belief that gold prices and interest rates have an inverse relationship. The idea is that, since higher interest rates make fixed-income investments more attractive, money will flow out of gold and into high-yielding investments as rates rise. Therefore when the Federal Reserve raises the federal funds rate, then weakness in gold should follow.  However, historical data shows no significant correlation between rising interest rates and falling gold prices. Ultimately, the relationship between gold prices and interest rates is uncertain and unstable because gold is traded on a global market subject to forces far beyond the reach of the Federal Reserve.

From March 2022 to July 2023, the Federal Reserve raised the federal funds rate by more than five percentage points. In that same time period, gold prices rose from $1908.30 to $1960.40. By the end of 2023, gold was trading at $2062.40. While interest rates may have some effect on gold prices, rising rates don’t automatically drag gold prices down. The real picture involves many moving parts, including factors such as fears of inflation, geopolitics, global growth prospects, and wider investor outlooks. 

It is also important to remember that gold is influenced by supply and demand. Higher interest rates may reduce overall investment demand for gold. At the same time, if supplies do fall, then it is possible that the price of gold sustains, or even appreciates. The constant jostling of supply factors can influence the relationship between the gold price and interest rates.

Economic and geopolitical uncertainty tend to be positive drivers for gold. Many investors view gold as a safe-haven asset during troubling times due to its ability to remain a reliable store of value. Because of its low correlation with other asset classes, gold can act as insurance during falling markets and times of geopolitical stress. 

J.P. Morgan research predicts that both gold and silver will have a positive forecast over the course of 2024 and into the first half of 2025. According to the J.P.Morgan, gold prices will peak at $2300/ oz in 2025. This prediction assumes a Fed cutting cycle initially delivering 125 basis points (bp) of cuts over the second half of 2024, pushing gold prices to new nominal highs.

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