Gold and Fed Rate Cuts: History, Outlook, and Goldman Sachs' $5,000 Prediction
The Historical Connection Between Gold and Rate Cuts
Gold and interest rates have long moved in opposite directions. When the Federal Reserve cuts rates, the opportunity cost of holding non-yielding gold decreases, making the metal more attractive relative to bonds or savings accounts. At the same time, lower rates often weaken the U.S. dollar, which boosts gold's purchasing power for international investors. Additionally (and perhaps most importantly) rising gold prices and rate cuts are both spurred by the same stressors: inflation, crisis, and economic instability. This inverse correlation can be seen throughout history.
In the 1970s, the Fed repeatedly cut rates during bouts of economic turmoil and inflation. After President Nixon ended the gold standard in 1971, gold surged from a fixed price of $35 an ounce under Bretton Woods to $183 by 1975, a 423% gain. Later in the decade, another round of rate cuts helped send gold from $103 in 1976 to $850 by January 1980, an astonishing 725% increase.
During the dot-com bust of 2001-2003, the Fed slashed rates from 6.5% to 1% in just three years. Gold rose in response, climbing from $254 to $844 an ounce, a 223% gain that marked the beginning of a long bull market.
In the global financial crisis of 2007-2011, the Fed cut aggressively again, driving rates from 5.25% to near 0%. Gold soared from $650 in 2007 to $1,920 in 2011, nearly a 195% increase as investors sought safety from collapsing banks and volatile markets.
Even more recently, in March 2020, the Fed slashed rates to effectively zero during the COVID-19 crisis. Within months, gold climbed from $1,450 to $2,067 an ounce, a 42% jump in less than five months.
Taken together, these examples confirm that gold tends to thrive in the aftermath of Fed rate cuts.
What the Upcoming Fed Meeting Could Mean for Gold
All eyes are now on the Federal Reserve's September 16-17 meeting, where markets widely expect at least a 25-basis-point rate cut, with some speculation of a deeper 50-basis-point move. Gold has already responded to the growing probability of looser monetary policy, breaking through $3,600 an ounce and touching new highs near $3,674 in early September.
If the Fed cuts as expected, history suggests the rally could have further to run. Lower yields would once again make gold more competitive with interest-bearing assets, while a softer dollar would amplify global demand. Inflationary pressures remain in the background, and economic uncertainty continues to weigh on markets, all conditions that favor gold as both a hedge and a safe haven. Momentum and investor sentiment could further fuel speculative inflows, echoing past cycles where gold rose sharply in the months after rate cuts.
Goldman Sachs and the $5,000 Gold Scenario
Looking further ahead, Goldman Sachs has delivered one of the most striking forecasts on record. The bank expects gold to climb toward $3,700 by the end of 2025, with a baseline scenario of $4,000 by mid-2026 driven by central bank demand and sustained investor interest. But Goldman also outlined a more aggressive path: if even 1% of private capital currently invested in U.S. Treasuries were to shift into gold, prices could surge to $5,000 an ounce.
A critical factor in this scenario is the risk of eroding trust in U.S. institutions. Political interference with the Federal Reserve or questions about the government's fiscal credibility could undermine confidence in the dollar and Treasuries. In such an environment, gold stands out as one of the few assets that is not dependent on government promises or central bank stability, a role it has played for centuries.
A Pivotal Moment for Investors
The record is clear: whether in the inflationary 1970s, the tech bust of the early 2000s, the 2008 financial crisis, or the COVID-19 pandemic, gold has consistently rallied when the Fed slashes rates. With another rate cut on the horizon, gold's recent breakout may be only the beginning.
Goldman Sachs' forecast of $4,000 by 2026, and the possibility of $5,000 if investor sentiment shifts dramatically, highlights the metal's enduring importance as both a hedge and a safe haven. This may be the ideal time to buy physical gold or even roll over your existing retirement account into a precious metals IRA. Call our team at 855-271-2873 to lock in today’s price before the next major move.