The simple version of this story, rate hikes are bad for gold, misses the part that actually determines the outcome: whether the hike is enough to outpace inflation. A rate hike that still leaves real yields negative supports gold; one that pushes real yields meaningfully positive does not.
1. Nominal hikes versus real conditions
If a central bank raises its policy rate from 2% to 3% while inflation is running at 8%, real yields are still deeply negative despite the headline hike, and gold's opportunity cost hasn't actually improved. The same 1-point hike when inflation is at 2% pushes real yields meaningfully positive, a much less favorable backdrop for gold.
2. Being behind the curve
Periods where central banks have raised rates more slowly than inflation was accelerating, staying behind the curve, have historically coincided with strong gold performance, since real yields stayed negative or fell further even as headline rates rose. The market reads this as a sign that inflation is winning against policy.
3. Forward expectations matter as much as the decision
Gold often reacts more to the central bank's forward guidance about future hikes than to the hike that was just announced, since markets are pricing the expected path of real yields, not just the current level. A hike paired with dovish guidance about slowing future increases can be more bullish for gold than the hike itself might suggest.