Gold Resilient in Face of Rising Rates and Yields

Gold's price has shown resilience in the face of rising interest rates and high Treasury yields. Despite the Fed hiking the federal funds target range by 25 bps to 3.75%, 4.00%, gold held above $4,300.

The 10-year Treasury yield hit 5%, its highest level since 2007, but gold moved higher alongside yields. This is unusual, as higher risk-free yields normally increase the opportunity cost of holding a non-yielding asset like gold.

Geopolitical risks and safe-haven demand are driving up gold's price, while central banks and investors continue to buy into gold ETFs and official reserves. China added 20.2 tonnes in August, its largest monthly increase since October 2023, extending its buying streak to 22 consecutive months.

Major institutions, such as UBS and Goldman Sachs, still expect gold to trade higher over a longer horizon, with targets ranging from $4,600 to $5,400 by September 2027. However, some banks, like J.P. Morgan, have become more cautious in the near term due to weaker demand and potential further Fed hikes.