US Fed Rate Cuts: What Does This Mean for Gold?

On September 17, 2025, the Federal Reserve announced interest rate cuts by 25 basis points, lowering the federal funds target range to 4.00-4.25%. Gold prices rallied before the announcement, breaking record highs above $3,500 in early September in anticipation of loosening policy. Even after the cut, they continued to rise and reached new highs of around $3,800 per oz on September 29.

In this article, we explain the relationship between gold and interest rates, how gold prices moved before and after the Fed’s 2025 cut, and other factors driving the gold market this year.

Key takeaways:

• Gold and interest rates have an inverse relationship, which means they tend to move in opposite directions. When rates are cut, the opportunity cost of holding gold decreases, making it more attractive compared to bonds and savings accounts.
• Gold prices have surged by around 43% since the beginning of the year, driven by expectations of loosened monetary policy, a weaker U.S. dollar, central bank buying, and safe-haven demand amidst geopolitical tensions.
• The outlook remains bullish for gold, with analysts expecting it to continue trading in the $3,600 to $3,900 range in the near-term, potentially reaching $4,000 in 2026.

The relationship between gold and interest rates

Gold and interest rates have a typically inverse relationship, meaning gold prices usually rise when interest rates fall and vice versa. This is because gold is a non-yielding asset (doesn’t pay interest or dividends) that becomes more appealing in a low interest rate environment, when bonds or savings accounts offer lower returns.

Why do interest rate cuts increase gold prices?

When central banks cut interest rates, it sets off a chain of economic effects that almost always support higher gold prices:

• Lower returns on bonds and savings accounts reduce the income investors can earn elsewhere
• The opportunity cost of holding gold decreases, making it more competitive with interest-bearing assets
• Investor capital shifts towards alternative stores of value, with gold typically at the top of the list
• The U.S. dollar often weakens, boosting gold demand worldwide since it’s priced in dollars
• Inflation expectations can rise, increasing demand for gold which is traditionally seen as a hedge against inflation.

See: Exploring the Role of Gold as an Effective Hedge Against Inflation

Opportunity cost

Understanding the concept of opportunity cost is essential to understanding gold’s behavior in rate cut cycles.

Because gold doesn’t generate income the way bonds or savings accounts do, it’s not as appealing when interest rates are high. When interest rates fall, however, so do deposit rates and bond yields. This makes bonds or savings accounts less attractive, so investors naturally shift their portfolio allocations towards hard assets like gold.

This happens even more when real interest rates move into negative territory. In these situations, investors holding cash or bonds are actually guaranteed to lose their purchasing power.

Real vs nominal interest rates

To really understand this concept, we need to distinguish between nominal and real interest rates:

• The nominal rate is the stated rate you see on a bond or savings account
• The real rate is what you get after subtracting inflation from the nominal rate.

For example, if a 10-year Treasury bond yields 3% but inflation is running at 5%, the real interest rate is -2%. That means investors would actually be losing purchasing power by holding that bond, even though they’re technically earning interest.

In this situation, it’s easy to see how gold or silver – which don’t pay interest but do preserve value – can suddenly look more attractive than assets guaranteed to erode wealth in real terms.

The effect of currency devaluation

Because they reduce the returns available to foreign investors, rate cuts often also weaken the domestic currency. In the U.S., that means a weaker dollar. Since gold is priced in U.S. dollars around the world, it becomes cheaper for foreign buyers, increasing demand and pushing prices higher.

This effect becomes even stronger when multiple central banks cut rates at the same time. In this situation, we see several major currencies weakened at the same time, leaving gold as the universal safe-haven asset that investors can rely on across markets.

Learn More: Is There a Correlation Between the US Dollar and Gold Prices?

How gold has historically responded to interest rates

Here’s how gold has responded to falling rates in the past:

• 2000-2003: Gold climbed from about $280 to $400 per ounce as the Fed slashed rates
• 2007-2009: Rates fell near zero during the financial crisis, and gold surged from $650 to above $1,000
• 2019-2020: Interest rate cuts saw gold prices jump roughly 35%.

Looking back over the last two decades, it’s clear that rate cuts have consistently created favorable conditions for gold.

How gold responded to the recent rate cuts

Gold prices started rallying even before the September rate cut was announced, with investors betting on a looser monetary policy since as early as July. By September, gold had already climbed more than 34% year-to-date. In response, analysts steadily revised their forecasts upwards, with average 2025 projections going from $2,756 per ounce in January to $3,220 by July according to Reuters polls.

Investor sentiment played a big role in the rally, with many anticipating lower rates and flocking away from bonds and savings accounts. A weakened U.S. dollar – down nearly 11% since January – added fuel to the fire by making gold cheaper for foreign buyers, helping boost demand.

Some other factors that contributed to the rally include:

• Tensions over Federal Reserve independence, including President Trump’s threats to fire governor Lisa Cook, raised investor concerns about the stability of U.S. institutions. This uncertainty encouraged additional safe-haven buying that helped reinforce gold’s upward trajectory.
• Geopolitical tensions, including conflicts in the Middle East and between Russia and Ukraine, also boosted demand for gold as a safe-haven asset.
• Central banks, especially in developing countries, continued to diversify away from the U.S. dollar, with China adding to its gold reserves for the ninth month in a row in July.
• Institutional demand was strong, with the largest gold-backed ETF, SPDR Gold Trust seeing holdings rise by more than 12% in 2025, reaching their highest level since 2022.

When the Fed finally delivered its 25 basis cut on September 17, gold prices briefly dipped as many traders took profits. But the pullback was temporary and spot gold quickly rebounded, reaching new record highs of $3,814 and locking in a fifth consecutive week of gains.

Analysts expect the rally to continue, with many forecasting gold to trade in the $3,600-$3,900 range in the near term, with the potential of reaching $4,000 in 2026 if economic and geopolitical pressures remain.

Similar Reading: Why Central Banks Buy Gold

Gold and interest rates: FAQs

How quickly do gold prices respond to rate cuts?

Because markets trade on expectations, gold prices often start moving weeks or months ahead of rate cuts. If the decision or guidance comes as a surprise, the market reacts again on the day.

This is what we saw in 2025. Investors bet the Fed would cut rates and gold prices hit record highs in early September. They pushed even higher after the cut and guidance for more easing.

Does gold always respond to rate cuts in the same way?

Not always. Gold often sees bigger moves when policy adjustments are unexpected or come as a surprise compared to those that are expected. On top of that, cuts made during periods of economic stress also tend to boost gold prices more than those made during normal economic expansion.

Will gold start falling when interest rates rise again?

Not necessarily. Again, it often depends on the real rate (interest rate minus inflation). If inflation is rising faster than nominal rates (keeping real rates low/negative), then gold can still perform well even if rates increase.

What’s affecting gold prices in 2025?

Besides interest rate cuts, some other factors affecting gold in 2025 include:

• Central bank buying: Central banks continue to add to their gold reserves, particularly those in developing economies trying to move away from the U.S. dollar
• Investor demand: Investor demand is increasing, with gold-backed ETFs like SPDR Gold Trust seeing the largest inflows since 2022
• Geopolitical uncertainty: Geopolitical tensions have increased demand for gold as a safe-haven asset
• Weakened U.S. dollar: The U.S. dollar fell by nearly 11% in 2025, making gold more affordable for foreign investors and increasing demand.

See: Everything You Need to Know About Gold ETFs

Buy investment-grade gold today

In 2025, gold’s performance soared past expectations and climbed higher with each passing month, fuelled by interest rate cuts, geopolitical tensions, central bank buying and a weakening U.S. dollar. If current trends remain, many analysts expect the rally to continue into 2026, with gold prices potentially climbing past $4,000 an ounce.

If it feels like you’ve missed the boat, it’s not too late to invest in gold’s enduring value. Browse our selection of investment-grade gold bullion bars and gold coins and start preserving your wealth with precious metals today.