Inflation drives gold; the outcome depends on whether rate hikes catch up.
Now · updated 2026-10-26
Negative Brent ~$110–116 lifts inflation and hike expectations — a headwind
Inflation is the root driver, but the outcome depends on whether the Fed’s hikes catch up with it. Gold soared in the 1970s oil shocks when central banks fell behind inflation, but entered a 20-year bear market once Volcker pushed real rates high. In 2022 US inflation neared 9% yet gold fell as the Fed hiked fast; in 2026 oil-driven inflation lifted hike expectations and gold retreated. The key is the real interest rate.
📊 Since 1971: real rates and gold
Top: gold (USD/oz, log scale). Bottom: US real rate (fed funds minus CPI inflation, annual). Gold bands mark negative real rates — gold’s big runs (1970s, 2002–2011, after 2020) mostly fall inside them, while the high real rates of the 1980s–90s brought a 20-year bear market.
Our note: Note the exception: in 2023–2025 real rates were clearly positive yet gold kept hitting records, driven by central banks buying over 1,000 tonnes a year and worries about US debt. So: real rates set the broad direction; central-bank buying and safe-haven demand can override it.
Data: St. Louis Fed FRED (effective fed funds rate, CPI year-on-year, annual averages; 2026 = Jan–Sep); gold annual averages. CPI gives an after-the-fact real rate; markets trade expected inflation (e.g. 10-year TIPS yields), which usually moves the same way.