“Much to the dismay of the quant community, when the Fed began raising interest rates in 2022, the strong correlation between gold and real rates broke down,” Slok wrote in a blog post on Monday.

Gold has cemented itself as a safe-haven asset, seen as a life vest during times of market turmoil. Since the initial rate hike in 2022, gold prices have soared, rising more than 150% to hit a record-breaking $5,000 per troy ounce last month. Investors like Ray Dalio of Bridgewater Associates have advocates for 15% of one’s portfolio to be allocated to gold amid heightened geopolitical tensions and rising US debt. But gold’s current unpredictable relationship with a reliable correlate is another sign that investors are bracing themselves for when things go sideways.

“It tells you that investors are concerned about the level of return they’re getting on traditional assets,” Slok said. luck. “And that’s why investors are starting to look at alternative assets.”

Citing data from Bloomberg and Macrobond, Slok says that before early 2022 when the Fed starts hiking rates to prevent post-pandemic inflation rising to around 9%, the price of gold and interest rates are inversely correlated. But after the Fed hikes in 2022, this will no longer be the case. Instead of falling in gold prices, following the pattern of previous price increases, they remained stable. While the Fed held rates steady, gold prices continued to rise.

According to Slok, this broken relationship signals to the market that in times of high interest rates, investors are making more considerations if the pricing of future outcomes—especially gold—is partly a result of inflation that has remained stubbornly elevated since early 2021.

“The bottom line is that new risks arise when inflation is consistently above the Fed’s 2% target, where we are currently,” Slok said in his blog post.

What caused the breakdown of the gold-interest rate relationship?

Gold is a rare asset, wrote Goldman Sachs analysts Lina Thomas and Daan Struyven in an August 2025 Gold Market Primer report. It is difficult to mine, and its supply grows only a little each year, with almost all the gold extracted from the earth still in supply, hands to sell, as opposed to manufacturing or destroying, which gives it its precious value.

“Every year, more rock, more energy, more labor, and more capital are needed to produce the same ounce,” the analysts said. “This limited, slow-moving, price-inelastic supply is what gives gold its status as a store of value – what makes gold … gold.”

In the past, gold’s inverse interaction with interest rates was due to the fact that the precious metal had no yield and paid no interest or dividends. When interest rates are high, gold becomes less attractive because of the increased opportunity cost of holding other assets such as bonds. Conversely, demand for gold usually increases when prices are cut, when holding cash-flow generating assets is considered less profitable.

But the swelling of inflation after the start of the pandemic changed this relationship. By 2022, the typical 60/40 portfolios—composed of 60% equities and 40% bonds—hit as the markets are in turmoil, and inflation and rate hikes make bonds less of a hedge for stocks. Meanwhile, gold, usually a hedge against inflation because of its inelastic value, surged.

While inflation has eased, hovering around 2.7%, Slok said he believes its continued rise has created a new normal in gold with more appeal, and traditional assets with less.

“I know it sounds like (3%), (2%) what’s the difference?” Slok said. “But it’s really meaningful. If you allow inflation to be three for a long time, then your portfolio will lose 3% every year, instead of losing 2% every year.”

The role of geopolitical tension

There are also geopolitical factors driving up the price of gold, particularly Russia’s war in Ukraine, which not only boosts the price of gold as investors rush into real assets, but also because of resulting in Russian sanctions. These sanctions prompted central banks to seize gold, seeing it as an asset-proof sanction.

Central banks’ desire for gold has increased amid President Donald Trump’s “TACO” trade in their dwindling—but still highly dependent—replenishment of their US dollar reserves.

“The high perceived risk to macro policy in 2025 is not reversed,” Thomas and Struyven wrote in a note to clients last month. “The perception of these macro policy risks appears to be more sticky. So we think that (gold-based) hedges of global macro policy risks remain strong because these perceived risks (eg, fiscal sustainability) may not be fully resolved by 2026.”

What does the future hold?

Slok is less certain that there will be a return to a predictability in gold prices that were once neatly aligned with interest rates. He noted that gold’s popularity will depend on when investors see rising inflation (and geopolitical tensions) as a threat to their other assets—and when it’s ready to become the new normal.

“Maybe now we have a permanent higher inflation regime, and so maybe I need my permanent protection by buying real assets, of course, in particular gold,” said Slok on the thought processes of investors.

Slok sees a continued increase in enthusiasm for private credit and international assets as a natural consequence of this shift, perhaps fueling the “Sell America” ​​trade which arose out of concerns over Fed independence and Trump’s repeated threats to take over Greenland. This trend will continue, Slok suggests, as long as investors view declining inflation as a lost cause.

“Do investors feel that these four years from 2022 are an anomaly, or is this really a new regime we’re entering?” he said.