On 16 September 2026 the US Federal Reserve raised interest rates for the first time since 2023. It lifted its main rate by a quarter of a percentage point to a range of 3.75% to 4%, and the Fed's own statement was blunt: "Inflation remains elevated." According to CNBC's report on the decision, the vote was 12 to 0 and officials signaled that another hike was possible this year.
Markets believe them. On 28 September, gold futures fell to about $4,189 an ounce, the lowest since 5 August, and Yahoo Finance reported that CME Group's rate tracker showed more than a 70% chance of another hike in October.
So what happens to gold when interest rates rise? The common answer is "rate hikes are bad for gold." We checked that belief against every major US hiking cycle since the 1970s. The honest answer is that it depends, and history shows what it depends on.
The Federal Reserve (often just "the Fed") is the central bank of the United States. Its main tool is the federal funds rate. This is the interest rate banks charge each other to borrow money overnight. FRED, the free data service of the St. Louis Fed, publishes its full history.
The Fed does not set this rate directly. It sets a target range, such as 3.75% to 4%, and steers the market into it. Changes are usually measured in basis points. One basis point is one hundredth of a percentage point, so a "25 basis point hike" means rates went up by 0.25%.
When the Fed raises this rate, borrowing gets more expensive, and savings accounts and short-term government bonds start paying more. That last part is the key link to gold.
A gold bar pays no interest and no dividend. Its only return is a change in price. That creates what economists call an opportunity cost: the income you give up by holding gold instead of something that pays you.
When a safe US government bond pays 0.5%, giving that up to hold gold costs very little. When it pays 5%, you pass up real money every year. So, all else equal, higher rates make gold less attractive.
But "all else equal" is doing a lot of work. The number that really matters is the real interest rate: the interest rate minus inflation. If a bond pays 5% but prices rise by 6% a year, your money still loses buying power. In that world gold does not look expensive to hold at all.
In this article we use two simple measures of real rates:
With those two tools, we can test the rule of thumb against history.
The table below covers six periods of rising US rates. Rate levels and inflation come from FRED. Target rate dates since 1994 come from the Federal Reserve's lists of current and past rate changes. Before 1994 the Fed did not publish a formal target, so for the 1970s and early 1980s we use the monthly average Fed funds rate.
Gold prices are monthly averages from the World Bank's commodity price data (often called the "Pink Sheet"), published on its commodity markets page. Monthly averages smooth out daily highs and lows, so treat the moves as approximate.
Short-term real rate = monthly Fed funds rate minus yearly CPI inflation, both from FRED, rounded. The 1994 row starts with January 1994 data, just before the first hike on 4 February. These are our calculations, not official statistics.
The pattern is already visible: gold did best when inflation ran ahead of rates and worst when rates pulled far ahead of inflation. The next section walks through each cycle to show why.
The Fed raised rates from about 4.6% in early 1977 to almost 14% by January 1980. But FRED data show CPI inflation climbed from about 5% to almost 14% over the same period, so the real rate stayed near zero. Savers were not being paid for the inflation they faced, gold looked like a good place to protect their money, and its price rose about fivefold.
Things changed after Paul Volcker took over as Fed Chair in 1979. On 6 October 1979 the Fed announced a new approach aimed squarely at inflation, as described by the Fed's own Federal Reserve History project. After a brief dip in mid-1980, rates hit 19.10% in June 1981 while inflation fell to about 9.7%. That left a real rate of more than 9%, a huge reward for simply holding cash. Gold fell about 32% and stayed below its 1980 peak for decades.
This is the cycle that built the "rate hikes are bad for gold" rule. The rule was really about real rates.
Between February 1994 and February 1995 the Fed doubled its target from 3% to 6%. Inflation stayed under 3%, so the real rate rose to about 3%. Gold did not crash, but with no inflation scare it had little reason to rise, and it ended about 3% lower.
This cycle breaks the rule most clearly. The Fed raised rates 17 times in a row, from 1% to 5.25%, as the Fed's rate list shows. Yet gold climbed about 52%, and its monthly average even touched $675 in May 2006.
Two things help explain it. First, the long-term real rate barely changed: the 10-year TIPS yield went from about 2.15% to about 2.53% on FRED data. Second, whatever else was driving gold was stronger than the hikes. The World Gold Council (WGC), the gold industry's research body, measured gold's return at 20.8% a year over the full 2004 to 2007 tightening and pause period.
The Fed moved slowly: nine quarter-point hikes over three years. The real short-term rate only just turned positive, and the 10-year TIPS yield rose from about 0.73% to about 1.02%. Gold rose around 16%. WGC's analysis in the same report found gold returned 7.2% a year in this cycle through early 2019.
Inflation hit about 8.6% in March 2022, and the Fed responded with four hikes of 0.75% in a row, reaching 5.25% to 5.50% by July 2023. The 10-year TIPS yield swung from about -0.72% to about +1.60%, a big jump.
By the textbook, gold should have been crushed. It did fall about 15% by October 2022, then recovered to end the cycle where it started. One key reason: central banks bought 1,136 tonnes of gold in 2022, "the highest level of annual demand on record back to 1950," according to the WGC's full-year 2022 report. These buyers are not chasing interest income, so higher rates did not put them off. (More in our guide to central bank gold buying.)
Put the six cycles together and a clear lesson comes out, which the next section spells out.
A rate hike is not one thing. Its effect on gold depends on three questions:
The US dollar is the fourth piece. Gold is priced in dollars, so a stronger dollar usually weighs on it. In its May 2026 market commentary, the WGC studied 44 Fed hikes from March 1997 to July 2023. It found that gold "positively surprised" after hikes more than half the time, and concluded that the dollar matters more during hikes than the rate move itself. Hikes followed by gold gains included June 2006, December 2018 and March 2023, when markets read the hike as the last one or as a sign of trouble ahead.
In short: when a hike pushes real rates and the dollar clearly higher, gold tends to struggle. When it does not, gold often shrugs it off. With that framework in hand, we can look at today.
Here is where the 2026 cycle stands on the measures used above, using the latest FRED data:
A simple monthly checklist: compare CPI inflation to the Fed funds rate, check the 10-year TIPS yield on FRED, and read the WGC's quarterly central bank figures. If inflation keeps rising faster than rates, history says gold can cope. If rates pull clearly ahead of inflation while the dollar strengthens, history says expect pressure. But be clear about what this history cannot tell you.
Six cycles is a small sample, and each had its own mix of wars, oil prices and currency moves.
Our real rate figures are simple approximations. Using expected inflation instead of past inflation would change them. Monthly average gold prices also hide the sharpest daily swings: gold's actual intraday peak in January 1980, for example, was higher than the $675 monthly average in our table.
Finally, the starting point matters. Gold is far higher today than in any earlier cycle, after a record above $5,500 in January 2026, as reported by Bloomberg. Big moves are possible for reasons unrelated to the Fed, and no history can tell you what gold will do next month.
Does gold always go down when interest rates rise? No. In the six US hiking cycles in our table, gold rose in three (1977 to 1980, 2004 to 2006 and 2015 to 2018), fell clearly in one (1980 to 1981), and was roughly flat in two (1994 to 1995 and 2022 to 2023).
What is a real interest rate? It is the interest rate minus inflation. If a bond pays 4% and prices rise 3% a year, the real rate is about 1%. It tells you how much buying power your savings actually gain.
Why do higher real rates hurt gold? Gold pays no income. When safe bonds pay a solid return above inflation, holding gold means giving up that return, so some investors sell gold to buy bonds.
Why did gold rise from 2004 to 2006 even though the Fed hiked 17 times? Long-term real yields barely moved in that period, according to FRED's TIPS data, so the hikes did little to raise the real cost of holding gold.
What happens to gold after the Fed stops hiking? The WGC's 2019 research found that gold has tended to react positively as a pause goes on or once the Fed starts to cut. That is a tendency, not a rule.
Does earning a yield on gold protect me from rate hikes? Only partly. Earning some income on gold, for example by staking a gold token such as GGBR into stGGBR, reduces the opportunity cost of holding it. But it does not protect you from a falling gold price. See our guide to the risks of gold staking before deciding.
"Rate hikes are bad for gold" is only half true. Gold has struggled when hikes pushed real rates well above zero and lifted the dollar, as in 1980 to 1981. It has done fine, sometimes very well, when inflation stayed ahead of rates, long-term real yields barely moved, or central banks stepped in. In September 2026 the long-term real rate and the dollar are rising, which explains some of gold's recent weakness, while central bank demand remains strong. Watch real rates, the dollar and official buying, not just the Fed's headline decision.
This article is for informational purposes only and is not financial advice.
| Period | Fed funds rate | Short-term real rate (start to end) | Gold, monthly average (start to end) | Approx. gold move |
|---|
| Jan 1977 to Jan 1980 | 4.61% to 13.82% | About -0.6% to about 0% | $132 to $675 | Up about 410% |
| Jan 1980 to Jun 1981 | 13.82% to 19.10% | About 0% to about +9.4% | $675 to $461 | Down about 32% |
| Feb 1994 to Feb 1995 | Target 3% to 6% | About +0.6% to about +3.1% | $387 to $377 | Down about 3% |
| Jun 2004 to Jun 2006 | Target 1% to 5.25% | About -1.9% to about +0.8% | $392 to $596 | Up about 52% |
| Dec 2015 to Dec 2018 | Target 0-0.25% to 2.25-2.50% | About -0.4% to about +0.3% | $1,076 to $1,250 | Up about 16% |
| Mar 2022 to Jul 2023 | Target 0-0.25% to 5.25-5.50% | About -8.4% to about +1.8% | $1,948 to $1,951 | About flat (fell about 15% to $1,664 in Oct 2022 before recovering) |
