- Interest rates have been a key driver for gold in both 2020 and 2021
- As interest rates have moved higher, the gold price has decreased…
- …but higher inflation expectations may provide some support for gold.
Interest rates as a key driver
One of the four key drivers of gold is the opportunity cost of holding it.1 In particular, the level and direction of interest rates are good indicators of gold’s performance, especially in the short and medium term.
The recent movement in US rates, on the back of the testimony of the Federal Reserve’s (Fed) Chair Jerome Powell to the US Congress, is a good example. The intra-day movement in the gold price on 24 February mirrored the behaviour of the US 10-year yield (Chart 1). As the 10-year yield topped 1.42%, the gold price dropped below US$1,785/oz, but as rates settled back to around 1.37%, the gold price climbed up again to above US$1,800/oz…