Dear Fellow Investor,
I hope your summer has been going well so far. Mine has. But, professionally, it has been anything but slow. The stock market has reached new highs in spite of the many distractions at the national and global levels.
The tariff and trade war noise has turned up the volume once again. Inflation concerns continue, raising questions about interest rates. And GDP growth resumed in the second quarter after contracting in the first. All of these concerns continue to keep many investors on edge. In such circumstances, many investors think about the role of gold in their overall portfolio.
Understanding the interplay between interest rates, gold prices, and yield is essential for navigating today’s complex financial markets. These three variables are deeply interconnected, influencing not only the performance of bonds and gold but also shaping the returns and risks across different stock market sectors.
In this article, I’m going to look at these relationships, provide examples, and offer practical insights for you in developing your portfolio strategy.
Exploring the Relationship Between Interest Rates, Gold Prices, and Yield
First, I want to make sure we have a shared understanding of what these three factors mean.
Interest rates—specifically those set by the Fed—are the cost of borrowing money. They influence everything from mortgage rates to corporate financing and are a primary tool for managing economic growth and inflation. Rising rates typically signal a strong economy or efforts to curb inflation. Falling rates are used to stimulate growth during slowdowns or recessions.
In investing, “yield” usually refers to the income return on an investment, expressed as a percentage of the investment’s cost or market value. Common types include bond yields, which are the interest income paid by bonds (inversely related to price), and dividend yields, which are the annual dividend income from stocks as a percentage of share price.
And of course, gold is a unique asset—valued as a store of wealth, a hedge against inflation, and a safe haven in times of uncertainty. Unlike bonds or stocks, gold does not yield interest or dividends. It holds value based on the collective demand of buyers, so when demand goes up, so does the price. When interest rates rise, the opportunity cost of holding gold increases, as investors can earn higher yields from bonds or cash, and that pushes the price of gold down.
It’s a subject for another article, but be aware that there are many ways to play gold as an investor, including mining stocks or ETFs, to name a few. And of course, you can always hold, literally or figuratively, gold bullion.
Gold is often seen as protection against inflation, which can be triggered by low or negative real interest rates. Higher rates tend to strengthen the U.S. dollar, making gold (priced in dollars) more expensive for foreign buyers, often lowering demand and price.
From 2022 to 2024, the Fed raised rates from near zero to over 5% to fight inflation. Historically, this would pressure gold, but persistent inflation, geopolitical risks, and negative real yields (interest rate minus inflation) helped gold reach record highs above $3,400/oz.
Bond prices and yields move in opposite directions. When rates rise, existing bond prices fall and yields on new bonds rise, making bonds more attractive than gold (or crypto or other assets that don’t provide a yield). When rates fall, existing bond prices rise and yields on new bonds fall. These falling yields make other asset classes, such as gold or stocks, more appealing.
In the previous graphic, we looked at how interest rates and gold prices have correlated in recent periods. But the market is not monolithic. Different sectors are more or less sensitive to changes in interest rates. The following table breaks down the impact of rising interest rates in the major financial sectors.
Interest Rate Sensitivity by Sector
| Sector | Sensitivity to Rising Rates | Dividend Yield (typical) | Gold Price Correlation |
| Utilities | High (Negative) | High | Low |
| Real Estate (REIT) | High (Negative) | High | Low |
| Financials | Moderate (Positive/Negative) | Moderate | Low |
| Technology | High (Negative) | Low | Low |
| Energy | Low/Variable | Moderate | Sometimes Positive |
| Materials/Mining | Low/Variable | Low/Moderate | Positive (esp. gold) |
| Consumer Staples | Moderate (Negative) | Moderate | Low |
| Industrials | Moderate (Negative) | Moderate | Low |
A few specific examples from the post-pandemic years (2022-2024) include:
- Utilities & REITs: Underperformed as rates rose; higher yields on Treasuries made their dividends less attractive.
- Financials: Mixed performance; banks benefit from higher lending margins but often suffer if rates rise too quickly or yield curves invert, as they did.
- Technology: Growth stocks were hit hardest by rising rates, as their valuations rely on future earnings and higher rates cause those earnings to be more substantially discounted.
- Materials/Mining: Gold miners outperformed as gold prices hit new highs despite rising rates.
Since gold provides no yield, what is the appeal of gold over other assets? Gold’s main appeal is as a store of value and hedge, not income. When real yields are negative, gold tends to perform well, as the opportunity cost of holding it is low. However, when real yields are positive and rising, gold can lag, as investors prefer income-generating assets.
Much of gold’s appeal lies in its diversification value. Gold often moves independently of stocks and bonds, providing a hedge during market turmoil or inflationary shocks. For instance, in 2022–2025, gold outperformed many stock sectors during periods of market stress and high inflation.
Gold Price vs. Real Interest Rates
| Year | Gold Price($/oz) | Real 10-Year Treasury Yield |
| 2015 | $1,100 | +0.5% |
| 2018 | $1,250 | +0.7% |
| 2020 | $2,000 | -1.0% |
| 2022 | $1,950 | -0.7% |
| 2024 | $2,700 | -0.8% |
| 2025 | $3,300 | -0.4% |
In 2022, as the Fed began an aggressive rate-hiking cycle, investors rotated out of rate-sensitive sectors (utilities, REITs, tech) and into energy and materials, which benefited from higher commodity prices and inflation hedging.
And then, during the banking turmoil of early 2023 and renewed geopolitical tensions in 2024, gold prices surged even as rates stayed high. Investors sought safety amid uncertainty, and negative real yields (inflation > nominal rates) made gold attractive despite the lack of income.
In summary, interest rates, gold prices, and yield form a dynamic triangle shaping investment returns across asset classes. By understanding their interplay and monitoring sector sensitivities, you can better position your portfolio for changing economic conditions and market cycles.
Takeaways:
- Interest rates, gold prices, and yield are deeply interconnected in financial markets.
- Rising rates generally pressure gold and rate-sensitive stock sectors, but persistent inflation and negative real yields can support gold prices.
- Bond yields compete with gold and high-dividend sectors for investor capital.
- Sector performance varies: Energy and materials often benefit from inflation/rate hikes, while utilities, REITs, and tech are more vulnerable.
- Gold remains a valuable portfolio diversifier, especially during inflationary or crisis periods.
For your successful investing,
Ed Coburn
President, Cabot Wealth Network
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