Every Tuesday afternoon we publish a collection of topics and give our expert opinion about the Equity Markets.
The price of gold has been stealing the spotlight in 2025, breaking records and captivating investors and the public at large worldwide. This month we have seen all-time records in both US$ terms and vs many recognised international currencies. US$3,500 has been breached as has A$5,400.
Some questions arise about gold’s connection to interest rate changes. When interest rates rise, does gold go up?
The short answer is often yes. But the reasons behind this are more nuanced. Let’s break it down.
Lower interest rates reduce the returns on savings accounts and risk-free investments like government bonds. This makes gold, which doesn’t pay interest but holds intrinsic value, more attractive by comparison.
But one can earn interest on gold and here are two examples, but not really appropriate for the average holder of physical bullion (bars):
Gold Leases – they are used to finance gold inventory or work in progress for gold-using businesses.
Instead of borrowing to buy gold and having to hedge the price risk via futures, companies can lease the amount of gold that they need for their business and pay interest on the gold they use. Gold leases are typically shorter-term agreements (one year or less) that are denominated in gold and pay interest in gold. Examples of companies that may lease gold include Mints, Refiners, Bullion Dealers.
Gold Bonds are another way to earn interest on gold. Gold Bonds are longer-term agreements (2-5 years or more) with principal and interest payable in gold.
Unlike gold leases, gold bonds are structured as gold-denominated debt. The gold bond’s face value is denominated in gold and it shows up on the debt side of the borrower’s balance sheet. The gold bond borrower amortises the bond using gold income from its business.
The overall backdrop for gold:
The macro for gold is decisive: U.S. “True Interest Expense” (entitlements plus net interest) now consumes more than 100% of federal receipts. This locks policymakers into financial repression, keeping real rates negative (the nominal (or stated) interest rate less the rate of inflation), weakening the dollar, and inflating away debt.
The Congressional Budget Office projects U.S. debt rising from ~100% to 150% of GDP by 2055. Debt service is clearly on an unsustainable path, reinforcing the case for financial repression and long-term tailwinds for gold.
By 2034, CBO and the Committee for a Responsible Federal Budget show U.S. debt surpassing $50T, faster still if the “One Big Beautiful Bill Act” is extended. Washington’s fiscal drift is structural.
Discretionary spending has collapsed from 70% of outlays in the 1960s to just 30% today. Let that sink in for a moment. Mandatory entitlements and net interest dominate the budget, with Social Security, Medicare, and Medicaid making up 70% of mandatory spending. These are politically untouchable and rising, cementing the fiscal straitjacket.
So, where do we think gold will be headed price-wise?
There are probably four key positive factors at play:
- The likely direction of major interest rates is down with the exception of Japan. Lower interest rates generally support a firmer gold price. Traders are pricing in an over 90% chance of a 25BP cut in the Fed Funds rate on the 17th of September with at least a further two cuts before year-end.
- Geopolitical risks are if anything deteriorating – the latest “get together” between Modi, Xi and Putin and the other trifecta of Xi, Putin, and Kim Jong Un at the military parade in Tiananmen Square. In addition, the war of Ukraine vs Russia and the ongoing Gazan conflict continue to direct some investment into safe havens of which gold is significant.
- Trade-related uncertainties prevail with a federal appeals court has ruled that most of President Donald Trump’s signature tariffs are illegal. No doubt he will appeal, but the situation in general has become quite shambolic.
- Broad dollar weakness
Gold remains under-owned. Pensions, insurers, and sovereign wealth funds hold ~1% in gold today vs. ~20% in the 1930s. For decades, U.S. Treasuries filled that reserve role, but the 60/40 portfolio has underperformed, eroding trust in bonds as a risk-free anchor.
If pensions, family offices, and individuals follow central banks in reallocating to gold and gold-related assets, it could be the next major catalyst.
Gold miners amplify the upside. At current prices, margins are surging. Newmont’s Q2 free cash flow jumped 42% QoQ, prompting a $3B buyback. Above US$3,000/oz, producers transform into cash-return stories rather than speculative plays. With institutional allocation near record lows, the stage is set for a re-rating.
The biggest risk to gold? A credible U.S. pivot to austerity. That isn’t happening.
The second risk is a spike in the USD, but if we see a rate cut this week and some dialogue about more rate cuts, then this looks highly unlikely.
Looking to next week – Silver – Gold’s poor cousin BUT we will look at it as a stand-alone commodity vs the US$ and its historical price relationship with gold. Why buy it – is it a sell?
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