Gold is unusual among things people trade: it doesn’t pay interest or dividends. That one fact explains much of why the price of gold often moves when expectations for interest rates change.
The opportunity cost of holding gold
When interest rates are high, investors can earn a return just by holding cash or government bonds. Holding gold instead means giving that return up. When rates fall, that “opportunity cost” shrinks, and gold tends to look more attractive. What matters most is often the real interest rate — the rate after inflation.
The dollar link
Gold is priced in US dollars. Higher US rates often strengthen the dollar, which makes gold more expensive for buyers using other currencies. That can weigh on demand, and on the XAU/USD price.
Why it doesn’t always work
These relationships are tendencies, not rules. Markets react to the surprise — the difference between what a central bank does and what was expected — not to the decision itself. Safe-haven buying during a crisis, central-bank gold purchases or inflation fears can also push gold up even while rates rise.
Trading around rate decisions: prices can jump and spreads can widen sharply in the minutes around an announcement. Stop-losses may be filled at a worse price than you set.
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This note is general education only. It is not investment advice, a recommendation or a trading signal.