Are higher interest rates good or bad for gold?

Higher interest rates tend to make gold loans more expensive for borrowers. When you pledge your gold to take a loan, the interest you pay is directly affected by the prevailing rates set by lenders. As interest rates rise, your monthly repayments or the total interest outgo also increases, which can make gold loans less appealing if you are looking for affordable borrowing options. This is especially relevant in 2025, when gold loan rates in India can vary widely sometimes reaching the higher end of the spectrum depending on the lender and the loan-to-value ratio.

For investors, the impact of higher interest rates on gold prices is more nuanced. Usually when interest rates move up traditional savings instruments like fixed deposits or government bonds become more attractive because they offer better returns. This shift can reduce demand for gold, which does not yield interest or dividends, sometimes leading to a dip in gold prices. The relationship is not always straightforward. Other factors like inflation, geopolitical uncertainty and currency fluctuations can also influence gold’s appeal and price movements.

In some cases, even with rising interest rates, gold prices may remain strong if investors are seeking safety during economic uncertainty or if central banks increase their gold reserves. Therefore, while higher interest rates usually make gold loans costlier and can put downward pressure on gold prices, the actual outcome depends on a mix of economic conditions and investor sentiment.