Gold has been trading in a tight range between $4,250 and $4,400 per ounce, under pressure from a US dollar that has climbed to two-month highs. The dollar has been gaining ground as markets price in a higher likelihood of significant Federal Reserve tightening in the coming quarters. Yet gold has not fallen sharply, as it might have done in previous cycles, because the usual relationship between the metal and real Treasury yields has broken down.
Why the old correlation has unravelled
Historically, rising real bond yields have been a headwind for gold, which pays no interest. Real Treasury yields have recently risen to 20-year highs. In normal circumstances, that would have pushed gold lower. This time, investor concern over rising US public debt and the associated financial stability risks has weakened that link.
When Treasury yields rise because the US economy is strong and competition for resources is intensifying, that is negative for gold. But when yields rise partly because of worries about fiscal sustainability, gold can hold its ground. The market is now weighing two competing narratives: one of economic strength, the other of long-term fiscal strain.
Central banks and Asian demand provide a floor
Strong physical demand has also helped gold avoid a collapse. In the first eight months of 2026, China imported more gold than in the whole of 2025. Chinese exchange-traded funds added 44 tonnes in August, 18% more than in the same period last year. ETF holdings, which had been declining in the first half of the year, have started to recover.
Central banks are buying, on average, twice as much gold each year between 2022 and 2026 as they did between 2010 and 2021. The share of gold in total gold and foreign exchange reserves has now exceeded, in value terms, the proportion held in US Treasuries. Central banks typically do not base their buying decisions on opportunity cost, which is another reason the price of gold has diverged from bond yields.
What could change the outlook
According to BMI, gold may fall over the long term if global economic growth comes in faster than expected. Rising energy prices and widespread monetary tightening are likely to hold back the global economy, however. The more the Fed and other central banks raise interest rates, the worse it tends to be for the economy and the better for gold. In previous rate-hiking cycles, gold recovered lost ground after initial setbacks. This time, the initial setback never really happened, thanks to strong physical buying.
If the dollar continues to strengthen and the Fed follows through with tighter policy, gold could remain under pressure. But the structural demand from central banks and Asian buyers may continue to provide support. For now, the metal is caught between a strong dollar and strong physical demand, with the old rules no longer applying as they once did.
Key takeaways
- Gold has been consolidating between $4,250 and $4,400 per ounce, pressured by a US dollar at two-month highs.
- The usual negative correlation with real Treasury yields has broken down, partly because of concerns over US fiscal stability.
- Strong central bank buying and record Chinese imports have prevented a sharp sell-off.
- If the economy grows faster than expected, gold may face headwinds; but tighter monetary policy and slower growth would be supportive.
Common questions
Why has the link between gold and bond yields broken?
Investor concern over rising US public debt and financial stability risks has meant that higher Treasury yields no longer automatically push gold lower. Central banks and Asian buyers are also buying gold for reasons unrelated to yield comparisons.
How much gold did China import in the first eight months of 2026?
China imported more gold in the first eight months of 2026 than in the whole of 2025. Chinese ETFs added 44 tonnes in August, 18% more than in the same month a year earlier.
What is the outlook for gold according to BMI?
BMI expects gold to fall over the long term if global economic growth accelerates faster than expected. However, rising energy prices and widespread monetary tightening are likely to slow the global economy, which would be supportive for gold.
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