The Impact of Federal Reserve Interest Rate on Spot Gold Prices: An Event Study

Abstract

Gold has become increasingly important as a safe-haven asset since the outbreak of COVID-19, and it is also an important reserve fund for countries. This study uses Excel to process the data of XAUUSD prices from Yahoo Finance from 2015 to 2025 and the events of the Federal Reserve's interest rate decisions. This study analyzes this data to observe the short-term price changes before and after the event day. The study finds that the Federal Reserve interest rate decisions have a significant short-term impact on gold prices. Furthermore, both market expectations and exogenous factors can cause abnormal fluctuations in gold prices. This research indicates investors that they should not adjust their gold allocation merely based on the direction of interest rate hikes or cuts. It is a better choice to decide after comprehensively considering factors such as the trend of the US dollar, inflation data, and market sentiment, and in combination with information on the Federal Reserve's interest rate adjustments.