The gold price is driven mainly by real interest rates, the US dollar, central bank buying and selling, and safe-haven demand during crises, with ETF flows and jewellery demand adding to the mix. For a UK buyer there is one more factor: the pound’s exchange rate against the dollar, which can move the sterling price even when the dollar price stands still.
The drivers at a glance
| Factor | Usual effect on gold | Example |
|---|---|---|
| Higher real interest rates | Tends to push gold down | US policy rates near 20% in 1980–81, followed by a long slide in gold |
| Stronger US dollar | Tends to push the dollar price down | 2022: strong dollar, gold roughly flat in dollars |
| Weaker pound | Pushes the sterling price up | Sterling gold rose in 2022 as the pound fell against the dollar |
| Central bank buying | Supports the price | Over 1,000 tonnes a year bought in 2022–2024 |
| Crisis | Often lifts gold after a first dip | 2008 and 2020 |
| Jewellery demand | Falls when prices are high | Down 11% in 2024 |
Interest rates in the US and the UK
Gold pays no interest. When savings and gilts offer a good return after inflation, holding gold costs you that income. When real returns are low or negative, the cost is small. That is why gold often struggles when interest rates rise faster than inflation.
Because gold is priced in dollars, US rates and the Federal Reserve tend to matter most for the global price. Bank Rate set by the Bank of England affects gold in sterling mainly through the pound: higher UK rates relative to US rates tend to support sterling, which in turn lowers the sterling price of gold.
The classic example is the early 1980s, when the US Federal Reserve pushed its policy rate to around 20% to break inflation. Gold peaked at $850 in January 1980 and then declined for almost two decades. But the link is not mechanical: in 2022 rates rose quickly in both countries, yet gold held up, helped by heavy central bank buying.
The dollar and the pound
The international benchmark, the LBMA Gold Price, is set in London twice each business day and is published in dollars, with sterling and euro values alongside. The price in pounds is simply the dollar price divided by the pound-dollar exchange rate.
- If gold is unchanged in dollars and the pound falls 10%, the sterling price rises by about 11%.
- If gold rises in dollars and the pound strengthens at the same time, the sterling gain is smaller.
- Sharp falls in sterling, such as after the 2016 EU referendum, have quickly lifted the sterling price of gold.
This is why the sterling chart can look very different from the dollar chart. Compare both on our gold price chart.
Central banks: from sellers to buyers
The UK is part of this story. Between 1999 and 2002 the Treasury sold 395 tonnes of gold at an average of about $275 an ounce, and several European central banks were also selling at the time. Today the trend has reversed.
According to the World Gold Council, central banks bought more than 1,000 tonnes a year in each of 2022, 2023 and 2024, and 863 tonnes in 2025. Poland’s central bank was the largest buyer in both 2024 and 2025. Many analysts link the jump to 2022, when sanctions froze a large part of Russia’s central bank reserves held abroad. Central bank demand is steady and not very sensitive to price, which helped gold stay firm while interest rates were rising.
London is also where much of this gold is kept: the Bank of England’s vaults store gold for the UK and for many other central banks, and the London market is the main hub for wholesale trading.
Crises and safe-haven demand
People turn to gold when they worry about banks, currencies or conflict. The first reaction to a market crash can still be selling, as investors raise cash.
- 2008: gold fell in the autumn as markets crashed, then rose to about $1,900 by 2011.
- March 2020: a brief dip as the pandemic hit, then a record of $2,067 in August 2020.
- 2025–2026: gold passed $4,000 in October 2025 and topped $5,500 in January 2026, then fell back sharply.
In the UK, demand for Sovereigns and Britannias tends to rise in uncertain times. Dealers such as The Royal Mint and others on our UK bullion dealers page sell both coins, and their buy and sell prices can be compared side by side.
ETFs, jewellery and supply
Exchange-traded products backed by physical gold let investors buy exposure through a brokerage or pension account. Large inflows or outflows can move the price over weeks. Jewellery is the biggest single use of gold by volume, led by India and China, and it is price-sensitive: the World Gold Council reported an 11% fall in jewellery demand in 2024. Mine supply responds slowly, so it rarely explains short-term moves. Total demand reached a record 5,002 tonnes in 2025.
How to follow the drivers
- Watch US real yields and the dollar together, then add the pound-dollar rate.
- Read the World Gold Council’s quarterly Gold Demand Trends for central bank and ETF figures.
- Be cautious about headlines that blame a single cause for one day’s move.
- Check live gold prices in pounds rather than relying on dollar headlines.
Bottom line
Gold tends to fall when real interest rates and the dollar rise, and to rise when they fall, but central bank buying since 2022 has shown that other forces can outweigh rates. For UK buyers, the pound’s exchange rate adds a second layer of movement. Crises often lift gold after an initial dip, and jewellery demand softens when prices are high.
Sources: World Gold Council – Gold Demand Trends · LBMA – Precious metal prices · Bank of England
This is general information, not tax or investment advice.
Frequently asked questions
Why does the gold price in pounds differ from the dollar price?
Gold is priced in dollars, so the sterling price equals the dollar price divided by the pound-dollar exchange rate. A weaker pound raises the sterling price even if the dollar price is unchanged.
Does the Bank of England affect the gold price?
Mostly indirectly. Bank Rate influences the value of the pound, and a stronger pound lowers the sterling price of gold. US interest rates tend to matter more for the global dollar price.
How much gold are central banks buying?
According to the World Gold Council, central banks bought more than 1,000 tonnes a year in 2022, 2023 and 2024, and 863 tonnes in 2025.
Did the UK sell its gold?
Yes. Between 1999 and 2002 the Treasury sold 395 tonnes at an average of about $275 an ounce, near a two-decade low in the gold price.
