Gold, Bitcoin, Australian dollar fall as interest rates expected to rise, leaving investors selling up

Commodity prices and the Australian dollar all extended a dramatic fall on Thursday to reverse the hottest trade since US President Donald Trump’s 2024 election victory led investors to bet interest rate cuts were coming.

The end of the US rate cut, or inflation trade, is pegged to a sudden expectation that the US Federal Reserve could lift interest rates twice by the first quarter of 2027, rather than be bullied into a cut to satisfy Mr Trump.

Textbook economics suggests higher interest rates should lower inflation and investors are now scrambling to sell assets that traditionally fall in value as rates climb.

Gold and Bitcoin are the biggest victims over the past month. On Thursday, gold tumbled below $US4000 ($A5799) an ounce for the first time since November and has now fallen 20 per cent since it peaked above $US5000 in February 2026 to cap a post-pandemic bull run underpinned by inflation.

Between Mr Trump’s election win in November 2024 and February 2026, gold rallied 175 per cent as traders, perhaps incorrectly, believed the White House would wrestle the the US Fed into cutting rates.

Silver also fell to its lowest level since 2025 on Thursday as interest rate futures traders now expect a 40 per cent chance of a rate increase at the Fed’s July meeting and an almost nailed on chance of at least one increase by September.

The week-long fall for commodity prices and growing expectations of higher rates in the US have also sent the Australian dollar tumbling.

A month ago, it bought US71.8 cents, but has dropped 3.8 per cent since to buy US68.9 cents on Thursday.

Miners in the spotlight

In response to the shifting interest rate expectations and plunging commodity prices, Australia’s largest company and diversified miner BHP Group has plunged 9.1 per cent in five straight trading sessions of losses.

BHP’s big bet on copper mines pushed it to a record closing high of $65.59 on June 17, but prices sunk to $US5.95 a pound on Thursday, versus $US6.51 a pound this time last week.

Investors in the big miners and other plays considered inflation winners now need to decide which way next.

“History warns that it’s dangerous to assume that there is no cycle and no risk,” said AMP’s Dr Shane Oliver.

The economist adding that central banks such as the US and Australia are increasingly shifting towards rate hikes to get serious in the inflation fight.

“This decade, we’ve seen four global inflation shocks – the pandemic, Ukraine, the oil shock and the AI data centre boom, or five in the US with Trump’s tariffs,” Dr Oliver said.

“And de-globalisation, decarbonisation, increasing defence spending and bigger government suggest a more inflation-prone world.”

Dr Oliver says complacency for share market investors is also a danger if they don’t believe central banks are willing to hike rates further.

“So, while the strong share run could continue for a while yet investors should resist the temptation to take on more risk,” he warned on Wednesday.

The issue is complicated by the chaos in the Middle East and unpredictable nature of Mr Trump.

Last week’s 60-day peace deal between Washington and Tehran saw US oil prices fall to their lowest since the war began at $US69.90 a barrel on Thursday.

Other strategists believe the US economy cannot survive a period of higher interest rates as it has too much debt and huge government spending deficits mean the position is worsening.

In its latest Quarterly Essay on the global economy, Goldman Sachs points out the US ratio of public debt to gross domestic product has increased from 55 per cent in 2000 to 124 per cent today.

Japan, the UK and Europe have also seen massive rises in government debt.

“It is difficult to overstate the extent of this shift,” said Goldman Sachs.

“In combination with higher rates, this has resulted in interest expenses for most governments taking up significantly higher share of their spending.”

Goldman Sachs said the post-pandemic era characterised by higher inflation has seen the likes of gold emerge as big winners but tips tech as the only sector that has performed consistently well in the pre and post-pandemic worlds of low and high interest rates.

Where gold and other inflation hedges move next is likely to depend on whether governments’ debt piles really can sustain higher interest rates, or not.