A puzzling phenomenon has been identified by Apollo Global Management Chief Economist Torsten Slok in financial data: for years, gold prices and real interest rates exhibited a stable negative correlation—rising rates led to falling gold prices, and vice versa. However, this relationship has now become completely disordered and unpredictable. Slok views this as another signal of increasing investor anxiety regarding the economic outlook.

"What has been particularly frustrating for the quantitative investment community is the complete breakdown of the strong correlation between gold and real interest rates since the Federal Reserve began raising rates in 2022," Slok wrote in a blog post on Monday.

Gold has firmly established itself as a safe-haven asset, seen as a lifeline during market turbulence. Since the first rate hike in 2022, the price of gold has surged dramatically, accumulating gains of over 150% and reaching a record high near $5,600 per ounce last month.

Investors such as Bridgewater Associates founder Ray Dalio recommend allocating up to 15% of a portfolio to gold, citing heightened geopolitical tensions and high U.S. debt levels.

The now unpredictable relationship between gold and its once highly reliable indicator further suggests that investors are preparing for potential market instability.

"This indicates that investors are anxious about the return levels of traditional assets," Slok stated in an interview with Fortune magazine. "It's also why they are beginning to focus more on alternative assets."

Citing data from Bloomberg and Macrobond, Slok pointed out that before the Fed started hiking rates in early 2022 to combat post-pandemic inflation which peaked around 9%, gold prices and interest rates maintained a stable inverse correlation. After the 2022 rate hikes began, this pattern vanished. Instead of declining as in previous hiking cycles, gold prices showed resilience; they continued to climb even as the Fed held rates steady.

Slok believes this breakdown sends a clear signal to the market: in a high-interest-rate environment, investors are factoring in a broader set of considerations when pricing the future—this is especially true for gold, partly because inflation has remained stubbornly high since early 2021.

"The core conclusion is that when inflation persists above the Fed's 2% target, new risks emerge, and we are currently in such a state," Slok wrote in his blog.

Why has the gold-interest rate relationship broken down?

Goldman Sachs analysts Lina Thomas and Daan Struyven, in an August 2025 primer on the gold market, described gold as a unique asset: it is difficult to mine, with minimal annual supply growth; nearly all the gold ever mined in human history remains in circulation, not consumed or destroyed, which grants it inherent value.

"Producing the same ounce of output requires more rock, energy, labor, and capital each year," the analysts noted. "This limited, slow, price-inelastic supply makes gold a store of value—this is precisely why gold is gold."

Historically, the negative correlation stemmed from gold's lack of yield—it pays no interest or dividends. In a high-rate environment, the opportunity cost of holding gold rises, making it less attractive; conversely, when rates fall, the appeal of yield-bearing assets diminishes, and demand for gold often surges.

However, the post-pandemic inflation surge altered this dynamic. In 2022, the traditional "60/40" portfolio (60% stocks, 40% bonds) suffered significant losses, as inflation and rising rates undermined bonds' role as a hedge against equities. Meanwhile, gold, valued for its stability, was seen as an effective inflation hedge, and its price rose substantially.

Even though inflation has since moderated to around 2.7%, Slok argues that its persistent elevation has created a new normal: gold's appeal has increased, while that of traditional assets has diminished.

"I know it might sound like, 'What's the difference between 3% and 2%?'" Slok said. "But it's significant. If inflation settles at 3% long-term, your portfolio will be eroded by 3% annually, not 2%."

The Role of Geopolitics

Geopolitical factors have also driven gold prices higher, notably the conflict in Ukraine: on one hand, investors have flocked to physical assets for safety; on the other, sanctions against Russia have prompted central banks to accelerate gold purchases, viewing it as an "anti-sanction" asset.

Amid the Trump administration's "TACO" trade policies, central banks' willingness to buy gold has strengthened further—they are reducing their reliance on U.S. dollar reserves while still being heavily dependent on the dollar.

"The high level of macro policy risks in 2025 has not been reversed," Thomas and Struyven wrote in a client note last month. "The perception of these macro policy risks appears to be more persistent. Therefore, we believe demand for gold as a hedge against global macro policy risks will remain stable, as these risks (such as fiscal sustainability) may not be fully resolved by 2026."

What is the future outlook?

Slok is uncertain whether gold prices will return to a predictable state of high correlation with interest rates. He suggests that gold's popularity will depend on how long investors perceive high inflation (alongside geopolitical tensions) as a threat to other assets—and whether this becomes the new normal.

"Perhaps we have now entered an era of permanently higher inflation, prompting investors to seek permanent protection by buying physical assets, especially gold," Slok described as the prevailing investor mindset.

He views the ongoing popularity of private credit and international assets as a natural consequence of this shift, potentially fueling further the "de-Americanization" trade—driven by concerns over Fed independence and former President Trump's repeated threats regarding Greenland. Slok indicated this trend is likely to persist as long as investors see little hope for a significant decline in inflation.

A key question for consideration remains: "Will investors view the past four years since 2022 as an anomaly, or have we truly entered a new era?" he said.