Guotai Junan Futures: Will interest rate hikes definitely cause gold to fall?

Guotai Junan Futures Market Analyst

Zhang Chining

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Last Friday night, the US released its August CPI data. Following the release, the market reacted very quickly—according to CME’s FedWatch tool, the probability of a Fed rate hike in September jumped from around 70% to nearly 90%.

But the market movement that night was quite unusual: gold didn’t really drop, but instead surged rapidly... leaving many people puzzled.

There has already been plenty of analysis of this abnormal trend in the market. Some believe that the PPI, which was released earlier that Thursday, was also high and that gold had already priced in a round of negative news. So when the CPI was released on Friday, it actually reflected a “sell the rumor, buy the news” situation. Others believe that, considering the upcoming US midterm elections, the Fed’s decision-making environment may become more subtle, and the market might still have some hesitation, thinking a rate hike in September isn’t set in stone. This could have given gold some reason to rebound.

Both explanations address that night’s movement. However, if you only look at the rise or fall over one night, capital, sentiment, and technical factors might all interfere. What’s truly worthy of consideration is a more general question—does the rule of “rate hikes mean gold falls,” which we’ve all assumed for years, really hold true? Today, I want to use this opportunity to clarify the relationship between rate hikes and gold.

So, how exactly do rate hikes affect gold? To understand this, we must first clarify what the Fed is actually increasing.

The Fed raises what is called the nominal interest rate. The nominal interest rate is roughly equal to the real interest rate plus inflation. What’s truly inversely correlated with gold is the real interest rate—the higher the real interest rate, the weaker gold tends to perform.

Why do we usually say “rate hikes, gold drops”?

Because most of the time, rate hikes suppress demand: as rates rise, borrowing becomes more expensive, which cools consumption and investment, so inflation tends to fall. Thus, rate hikes lead to higher nominal rates; at the same time, reduced demand causes inflation to reverse, and both effects push the real interest rate higher, putting pressure on gold—this is the logic we know best.

But this cycle, there are some differences.

This time, inflation is not just driven by demand but also by supply—Middle East tensions have driven international oil prices above $100 at one point, and in the month-on-month increase of the US August CPI, gasoline alone accounted for more than one-third.

With this kind of cost-push inflation, rate hikes may not be able to rein it in immediately—because even if borrowing and spending are suppressed, rising costs in oil, transport, and production are harder to address.

So another scenario may arise: on one hand, the Fed is hiking rates and nominal rates go up; but on the other hand, supply-side costs keep pushing inflation higher as well. If inflation rises faster than rate hikes, the real interest rate may not rise as expected, so gold’s response to rate hikes might not be as significant as anticipated. Conversely, expectations of this “second-round” inflation might add more fuel to gold’s rally.

Finally, one thing to remember: when analyzing gold right now, the focus should return to inflation itself—a significant part of this round is driven by supply, so applying the old rule that “rate hikes mean gold falls” may not be suitable this time.

Looking ahead, on one hand, we need to watch how the Fed’s future rate strategy evolves; on the other, geopolitical tensions and energy costs also deserve close attention to see how they ultimately play out.

Deadline: September 14, 2026, 14:02 (UTC+8)

Editor: Zhu He Nan