Bonds and Gold on EasyEquities: The Interplay of Global Interest Rates

As the world’s largest economy, the United States plays a defining role in shaping global financial markets. 

• Shifts in US inflation and Federal Reserve policy not only steer the dollar and (as a result) commodity prices like gold but also sends ripples through emerging markets such as South Africa.
• For local investors, the interplay between Fed decisions and the South African Reserve Bank’s (SARB) own rate cycle is critical, as it influences bond prices, currency movements, and overall investor sentiment.

US Inflation Rises Amid Weak Jobs Data

US inflation rose 2.9% in August, the fastest pace this year, driven by higher prices for cars, furnishings, and groceries such as tomatoes and beef. The increase comes ahead of a Federal Reserve meeting where a quarter-point rate cut is expected, though the rise in prices may keep policymakers cautious. Economists point to the impact of tariffs and immigration policies, with Atakan Bakiskan of Berenberg warning: “President Donald Trump’s inflationary policies, tariffs and restrictive immigration measures, are gradually showing up in the hard data and continue to erode consumers’ purchasing power.”

Labour market weakness is adding to the Fed’s concerns. Unemployment has edged up to 4.3%, and revised data showed 911,000 fewer jobs created over the past year than initially reported. Weekly jobless claims also reached a four-year high. As Ellen Zentner of Morgan Stanley explained: “Right now, inflation is a key subplot, but the labor market is still the main story. That translates into a rate cut next week and, likely, more to come.”

Rand Strengthens as Fed Rate Cut Expectations Rise

Weak payroll data has strengthened expectations of a September rate cut by the Federal Reserve, weakening the dollar and boosting the rand to around R17.50/$. 

According to Investec chief economist Annabel Bishop, “The US and South Africa are both still in interest rate cut cycles, but the US is set to cut its interest rates significantly more than the Reserve Bank in South Africa this year, and so the rand has gained, and this may allow for some further rand strength.” Schroders’ David Rees added: “While the odds are now stacked firmly in favour of imminent rate cuts, the Fed will need to tread carefully.” The Fed’s actions create space for the SARB to cut rates too, though likely in a more measured way to protect the rand.

How Rates Affect Bonds and Gold

In South Africa, interest rates have a direct impact on local bond prices. When the SARB cuts rates, bonds with higher yields become more attractive, which pushes their prices up.

• Rate cuts = higher bond prices
• Rate hikes = lower bond prices

This also affects government borrowing costs and investor appetite for rand-denominated assets. Nilan Morar, EasyEquities’ Head of Product, explained: "South African government bonds feature amongst the higher-yielding bonds in emerging markets, and this presents a compelling opportunity for investors seeking strong returns compared to inflation."

In the United States, gold prices often move in the opposite direction of interest rates. Since gold does not pay interest, its appeal increases when US rates fall because the “opportunity cost” of holding gold is reduced.

• Lower rates = weaker dollar + higher gold demand (as a safe-haven asset)
• Higher rates = stronger dollar + lower gold prices (investors prefer interest-bearing assets)

Fed policy shifts are therefore a major driver of global gold prices. As ING’s global head of markets research noted: “Fed rate cut expectations are helping gold’s status as the inflation hedge.” 

Fixed Income Bonds and Passive Income from Gold

Government bonds generate fixed income by paying investors regular interest, making them a reliable option for those seeking stability and predictable cash flow. Gold, on the other hand, provides more of a passive income opportunity when accessed through mining companies or funds.

As gold prices rise, mining companies typically see higher earnings, which can lead to increased dividends for shareholders. This creates a unique balance: bonds offer certainty, while gold-linked investments provide income potential tied to commodity performance.

Sources – EasyResearch.

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Government bonds offer a reliable way to earn fixed income by lending money to the government in exchange for regular interest payments. 

Dividends are one of the many key components of investing, representing a share of a company's profits distributed to its shareholders. 

Special dividends, also known as extraordinary dividends, are one-time payments made by companies to shareholders due to specific financial events, like windfall profits or asset sales.