How do gold prices affect mortgage rates?

Gold prices and the cost of your home loan

If you’re planning to buy or refinance a home, you’re probably looking at mortgages. You may be wondering why interest rates rise and fall so much, and how to find the best deal on a home loan. One of the factors that influence how much you’ll pay for a home loan is gold prices. But how do gold prices affect mortgage rates?

Gold prices reflect investor hopes and fears

People have coveted gold as long as civilization has existed. It’s been a reliable way to stash wealth in uncertain times. When war, economic crises, currency devaluation, or other calamities hit, gold has always been a haven. It’s a limited resource and will always be in demand for artistry and industry.

So when investors become unsure about the health of the economy, they tend to take their money out of stocks and move it into gold. It is how people have historically preserved wealth in hard times. Investors also tend to move money into Treasuries as well, because they are considered safe places to park money and not lose it. When you see gold prices rise significantly, you’ll likely also see bond prices rise.

Conversely, when gold prices fall, it’s usually because the economy is heating up, investors are confident, and they jump back into stocks. Less demand for gold causes gold prices to fall. You’ll probably see Treasury prices doing the same thing— lower demand for these “safe havens” causes their prices to drop. And when bond prices fall, interest rates rise.

Not a direct cause/effect

So how do gold prices affect your mortgage rate? Gold prices don’t necessarily cause mortgage rates to increase or decrease. They just indicate conditions that push rates higher or lower. When gold prices are rising, rates are more likely to fall. And when gold prices fall, mortgage rates are more likely to increase. They are worth paying attention to. If gold prices suddenly shoot up, and you’re considering locking an interest rate, check to see if mortgage rates are falling.

Related: See today's mortgage rates and current gold prices

Control what you can

Obviously, as an investor, consumer or borrower, you can’t control gold prices. And you can’t control mortgage rates overall. But mortgage rates, regardless of gold prices, don’t usually change much in a single day — just hundredths of one percent (called basis points). A movement of 10 basis points is considered significant in the industry, but as a practical matter for borrowers, it’s not that much.

The payment, for example, on a $300,000 mortgage at 4.25 percent is $1,486 per month. At 4.35 percent, it’s just $1,493. $7 a month more.

On the other hand, mortgage rates can vary from .25 to .5 percent between lenders on any given day. So if the average rate is 4.35 percent, you may be quoted 4.6 percent by one lender. Or 4.10 percent by another. And the difference in payment on a $300,000 loan between 4.6 percent and 4.1 percent is $1,538 a month versus $1,450. That’s a more significant $88 a month.

So the most important thing you can do to get the best mortgage rate available to you is to get several quotes from competing lenders and choose the best deal. You don’t know if an offer is good unless you compare it to a few others.