Gold Prices Plunge 26 Percent From January Highs on Rising Yields and Oil Prices

Gold prices have tumbled more than 26% since reaching an all-time high in January, leaving investors who bought near the peak facing significant losses. On the Korea Gold Exchange, domestic prices for one don (3.75 grams) of pure gold stood at 790,000 won to buy and 679,000 won to sell on the 5th, up 3,000 won from the previous day. International spot gold also saw a slight increase to around $4,159 an ounce in morning trading, still far below the record high of $5,595 in January. On the KRX gold market, spot gold has dropped over 27% to the 180,000-won range per gram from 253,000 won in January.

The decline is attributed to two main factors: rising U.S. Treasury yields and high oil prices. Gold, which pays no interest, becomes less appealing when yields rise. The yield on the 10-year U.S. Treasury note climbing to the 5% range has intensified downward pressure on gold prices. Additionally, inflation concerns driven by high oil prices have kept the possibility of further tightening by the Federal Reserve open, further weighing on gold.

Despite the steep drop, bargain hunters have emerged. Gold bar sales at the five largest banks totaled 29.1 billion won last month, more than triple the pre-pandemic monthly average of 8.5 billion won. However, this is still about a third of the 90 billion won recorded early this year when prices were surging. The direction of U.S. interest rates remains the key variable, with Wallet Investor projecting an average gold price of $4,170 in October and the $4,300 range by year-end. Goldman Sachs has maintained its end-2027 target at $5,400 an ounce, suggesting potential gains over the medium to long term.

Central bank buying is another structural support. Goldman Sachs noted that central banks purchased an average of 91 tons of gold a month over the past three months, more than five times the monthly average of 17 tons before 2022. However, market participants caution that a rebound will be difficult if the U.S. 10-year yield stays in the 5% range or if oil-driven price pressures reignite.