The Impact of U.S. Interest Rates on Gold Prices
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This study examines whether monthly changes in U.S. interest rates were associated with monthly gold returns from January 2020 through August 2026. The analysis combines monthly gold prices from the World Bank Commodity Price Data with the effective federal funds rate from the Federal Reserve. The merged sample contains 80 monthly observations. Gold returns and federal funds rate changes were calculated from the level series, after which Pearson correlations and ordinary least squares regressions were estimated for a same-month specification and a one-month-lagged specification. The same-month rate-change coefficient was negative but not statistically significant (beta = -3.176, p = 0.109). The one-month-lagged coefficient was negative and statistically significant at the 5% level (beta = -3.984, p = 0.045; 95% confidence interval: -7.876 to -0.092). This result indicates that a one percentage-point increase in the effective federal funds rate was associated with an estimated 3.984 percentage-point reduction in the following month's gold return. However, the lagged model explained only 5.2% of the variation in monthly returns. Gold prices increased by 182.6% over the full sample, despite substantial changes in monetary policy. The evidence therefore provides limited support for a negative short-delay relationship between U.S. interest-rate changes and gold returns. The findings describe association rather than causation and should be interpreted alongside other determinants of gold prices, including inflation expectations, the U.S. dollar, uncertainty, and central-bank demand.
Keywords
Effective Federal Funds Rate, Gold Prices, Gold Returns, Interest Rates, Monetary policy, Time Series