Discover why decisions made by the US Federal Reserve directly impact the price of gold in your local Sarafa market.
The Opportunity Cost of Gold
Gold yields no interest or dividends. Therefore, its primary competitor for investment capital is government bonds (which pay interest). When global central banks, specifically the US Federal Reserve, raise interest rates, bonds become more attractive, and gold often falls.
The Inverse Relationship
Historically, gold and real interest rates have an inverse relationship. When rates are slashed to zero (as seen during the 2020 pandemic), gold skyrockets. When rates are aggressively hiked to combat inflation, gold faces strong headwinds.
Watching the Fed
If you are serious about timing the gold market, you must follow the US Federal Reserve's FOMC meetings. Anticipation of a rate cut is often enough to send gold prices soaring globally, which translates directly to higher prices in Pakistan.