Kevin Warsh and How the Federal Reserve Impacts the Price of Gold

The Federal Reserve does not set the price of gold, but it can have an outsized impact on the supply and demand forces that do, at least in the short term. When the Fed raises or lowers interest rates, it changes what investors can earn on cash and bonds, which changes how attractive gold looks by comparison. With Kevin Warsh taking over as Fed chair in May and interest rate policy at its most uncertain point in years, understanding how this relationship works has rarely been more useful. Here’s what the Federal Reserve is, how it operates under its new chairman, and what decades of research say about how its decisions move the price of gold.

What Is the Federal Reserve?

The Federal Reserve is the central bank of the United States. It manages the country’s financial system primarily by doing three things:

• Controlling the flow of money by purchasing or selling securities like Treasuries
• Lending to large financial institutions when needed to keep the economic gears turning
• Setting short-term interest rates, which affects the cost of borrowing across the entire economy

Congress gave the Fed two goals, often called its dual mandate: keep employment high and keep inflation low. Those goals are frequently in tension. The Fed’s main tool for fighting inflation, raising interest rates, also slows the economy and can cost jobs, which means nearly every Fed decision is a judgment call about which goal needs more attention at that moment.

Interest rate decisions are made by the Federal Open Market Committee, or FOMC, which meets eight times per year and announces whether the federal funds rate will rise, fall, or stay the same. The Fed chair leads that committee, which is why markets react to the chair’s words, sometimes before policy changes at all.

Who Is Kevin Warsh?

Kevin Warsh took office as chairman of the Board of Governors of the Federal Reserve on May 22, 2026, for a four-year term, according to the Federal Reserve. This is his second tour at the Fed. He served as a governor from 2006 to 2011, through the financial crisis, before spending more than a decade at Stanford’s Hoover Institution and as a partner at Duquesne Family Office. Earlier in his career he worked at Morgan Stanley and served as an economic policy advisor in the White House.

Warsh has chosen to say less publicly than his predecessors, which puts a premium on the words he does use. CNBC counted three phrases across his first five public appearances: “family fight” 13 times, “first principles” 11 times, and “inflation is a choice” six times.

Claudia Sahm, chief economist at New Century Advisors, told CNBC that “‘first principles’ is code for ‘question everything.’” Mark Spindel, chief investment officer at Potomac River Capital, said the “family fight” phrase describes the natural debate inside the FOMC, but also functions as a shield: “It’s also a way of deflecting his responsibility from external pressure.”

“Inflation is a choice” is the phrase gold investors should watch most closely. It’s a nod to Warsh’s mentor Milton Friedman, who famously said that inflation is always and everywhere a monetary phenomenon, and Fed watchers broadly read it as Warsh holding the Fed itself accountable for bringing inflation down. Markets have translated that into one word: hawkish.

How Does the Federal Reserve Impact Gold Prices?

The Fed cannot directly change the value of gold, but its decisions ripple through the two things that price gold every day: the dollar and interest rates. Gold is priced in dollars and pays no interest, so anything that strengthens the dollar or raises the return on cash and bonds changes gold’s appeal.

What happens to gold when the Fed raises rates?

When the Fed raises the federal funds rate, borrowing gets more expensive, but savings accounts, CDs, and Treasury bonds start paying more. Gold offers no dividend or interest. Its only return comes from price appreciation, which means that when interest-bearing investments are paying well, they tend to be favored over gold, and gold’s price can dip. This is the dynamic that defined June 2026, when rate-hike expectations under Warsh’s new Fed pushed gold to its worst quarter in 13 years and briefly below $4,000 an ounce, which we covered in our June spot price recap.

What happens to gold when the Fed cuts rates?

The reverse. Cash and bonds pay less, so holding gold costs investors less in forgone interest. Rate cuts also frequently signal that the Fed is worried about the economy, which is historically when gold has done well as a store of wealth.

So does the Fed have direct control over gold prices?

Not exactly. Inflation, economic uncertainty, and global demand are the primary drivers of gold, and Fed policy works on gold through those channels rather than around them. Gold isn’t guaranteed to fall just because the Fed hikes, and it isn’t guaranteed to rally just because the Fed cuts. What the Fed reliably changes is the opportunity cost of holding gold, and over time, that cost is one of the most powerful forces in the market.

What the Research Says

The Federal Reserve Bank of Chicago published one of the most thorough studies on this question, examining what has driven gold prices across five decades of data. Its economists tested the three most common claims about gold, that it hedges inflation, that it responds to real interest rates, and that it protects against bad economic times, and found meaningful support for all three:

• A one percentage point rise in the long-term real interest rate lowers the real price of gold by 13.1%
• An extra percentage point of ten-year expected inflation raises the real price of gold by 37%, which the researchers noted is “well in line with the long-held ‘inflation hedge’ view”
• A one standard deviation increase in the share of consumers expecting bad economic times raises the gold price by 9.7%

Chicago Fed

Chicago Fed

Notice that real interest rates* and inflation expectations push in opposite directions, which explains a lot about 2026. Inflation is elevated, which supports gold, but the Fed’s response to it, higher rates, works against gold at the same time. The result is the tug-of-war investors have been living through since February.

There’s also a longer-run force underneath the rate cycle. A 2024 study in the European Financial and Accounting Journal found that the price of gold and the U.S. M2 money supply* have moved together for over 50 years. When gold has strayed far from that relationship, it has always come back, though not quickly: the overvaluation of 1980 took ten years to correct, the 2007 overvaluation took seven, and the undervaluation of 2001 took six years to close. The money supply grows under every Fed chair, hawkish or dovish, which is a large part of why gold’s long-term trajectory has survived all of them.

Econstor

What This Means for Gold Investors

If the Fed hikes and inflation cools, the opportunity cost of holding gold stays high and prices likely stay under pressure. If inflation stays sticky despite higher rates, or the economy weakens under them, the Chicago Fed’s research suggests gold benefits from both the inflation channel and the bad-times channel at once. Reuters reported in early July that fading U.S.-Iran peace prospects and elevated oil prices were reinforcing rate-hike bets, with markets pricing roughly a 67% chance of a September hike heading into Warsh’s first FOMC meeting as chair.
In the long term, the forces that matter most don’t depend on who chairs the Fed. The money supply keeps growing, central banks keep buying, and government debt keeps rising. We’ve written about how these forces played out in real time, including why gold didn’t rally when the Iran war began and what gold is signaling about inflation.

If you’re considering adding physical gold to your portfolio, check our daily spot prices or learn more about getting started.

*Real interest rates are interest rates adjusted for inflation, showing the true return investors earn after accounting for rising prices.

*M2 money supply is a broad measure of money in the U.S. economy that includes cash, checking deposits, savings accounts, small-time deposits, and retail money market funds.

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