A top Wall Street analyst observes an unusual dynamic between gold and interest rates, warning that inflation risks are reshaping market logic
Apollo’s chief economist Torsten Slok has uncovered a puzzling trend in financial data: For decades, gold prices and real interest rates shared an inverse correlation—when rates climbed, gold values fell. But today, that connection between the two metrics is entirely disjointed with no clear pattern, and Slok views this as another indicator that investors are growing nervous about the economy’s health.
“To the quant community’s great frustration, the tight correlation between gold and real rates collapsed when the Fed began hiking interest rates in 2022,” Slok stated in a on Monday.
Gold has long established itself as a safe-haven asset, acting like a life preserver during turbulent market conditions. Since the Fed’s first rate hike in 2022, gold prices have surged by over 150%, reaching a last month. Investors such as Bridgewater Associates’ Ray Dalio have allocated to gold amid rising geopolitical tensions and ballooning U.S. debt. However, gold’s now-erratic link to a once-consistent metric is another sign investors are preparing for potential downturns.
“This indicates investors are worried about the returns from traditional assets,” Slok told . “That’s the reason they’re starting to explore alternative investments.”
Using data from Bloomberg and Macrobond, Slok points out that before early 2022—when the Fed started raising rates to combat post-pandemic inflation (which hit a peak of around 9%)—gold prices and interest rates moved in opposite directions. But after the 2022 rate hikes, this dynamic shifted. Gold prices didn’t drop as past rate hikes would have predicted; instead, they stayed strong. Even as the Fed kept rates unchanged, gold values kept rising.
Slok explains that this fractured relationship tells the market that during periods of high interest rates, investors are factoring in extra variables when valuing future outcomes—especially for gold—partly because inflation has stayed persistently high since early 2021.
“The key takeaway is that new risks arise when inflation stays above the Fed’s 2% target, which is still the case right now,” Slok wrote in his blog post.
What caused the breakdown in the gold-interest rate relationship?
Gold is a one-of-a-kind asset, according to Goldman Sachs analysts Lina Thomas and Daan Struyven in their August 2025 Gold Market Primer report. Mining it is difficult, its supply increases minimally annually, and almost all gold ever dug up remains in circulation (changing hands) rather than being consumed or lost—this is what gives it its precious status.
“Every year, producing a single ounce of gold requires more rock, energy, labor, and capital,” the analysts noted. “This constrained, slow-growing, price-insensitive supply is what earned gold its reputation as a store of value—what makes gold unique.”
Historically, gold’s inverse relationship with interest rates stemmed from the fact that it doesn’t generate yields, interest, or dividends. When rates are high, gold is less attractive because holding yield-bearing assets like bonds has higher opportunity costs. On the flip side, gold demand typically surges when rates are lowered, as cash-flow-generating assets become less beneficial.
But the surge in inflation after the pandemic began altered this connection. In 2022, traditional 60/40 portfolios (60% stocks, 40% bonds) as markets fluctuated, and inflation plus rate hikes reduced bonds’ effectiveness as a hedge for stocks. At the same time, gold—usually an inflation hedge because of its stable value—rose sharply.
Although inflation has cooled to around 2.7%, Slok argues that its ongoing high levels have created a new normal where gold is more attractive and traditional assets are less so.
“I understand this might seem trivial—3% vs. 2%—but it’s actually significant,” Slok stated. “If inflation stays at 3% for a long time, your portfolio loses 3% of its value annually instead of 2%.”
The role of geopolitical tensions
Geopolitical factors have also pushed gold prices higher, especially Russia’s invasion of Ukraine. This conflict not only led investors to flock to real assets (driving gold up) but also because of the . These sanctions prompted central banks to buy large amounts of gold, viewing it as an asset immune to sanctions.
Central banks’ appetite for gold has grown stronger as they cut back (though still heavily depend on) using the U.S. dollar to build their reserves.
“The high level of perceived macro policy risk in 2025 hasn’t gone away,” Thomas and Struyven wrote in a client note last month. “These perceived risks seem more persistent. So we expect gold-based hedges against global macro policy risks to stay steady, since issues like fiscal sustainability may not be fully resolved in 2026.”
What does the future hold?
Slok isn’t confident that gold prices will revert to their former predictability, where they closely tracked interest rates. He said gold’s popularity will hinge on how long investors perceive higher inflation (and geopolitical tensions) as threats to their other assets—and whether this becomes the new status quo.
“Perhaps we’re now in a regime of permanently higher inflation, so investors might think they need permanent protection by purchasing real assets—especially gold,” Slok explained, describing investors’ reasoning.
Slok views the growing interest in private credit and international assets as a natural result of this shift—possibly fueling the that arose from worries about Fed independence and Trump’s repeated threats to take over Greenland. This trend will persist, Slok implied, as long as investors believe reducing inflation is impossible.
“Do investors think the four years since 2022 were an exception, or are we truly in a new era?” he asked.