Gold Struggles as Rising Yields and Strong Dollar Weigh Heavily
Gold prices have faced renewed selling pressure following the latest interest rate hike by the US Federal Reserve. On September 16, the Fed raised its benchmark rate by 25 basis points to 3.75-4.00 percent, the first increase in over three years. This move, combined with rising Treasury yields and a stronger US dollar, has diminished the appeal of the non-yielding precious metal.
The benchmark 10-year US Treasury yield recently climbed to 5.25 percent, its highest level since 2007, while the Dollar Index surged above 101. These factors have created a double headwind for gold. A stronger dollar makes gold more expensive for international buyers, while higher yields increase the opportunity cost of holding gold, which offers no regular income.
Despite heightened geopolitical uncertainty in West Asia, which typically boosts gold as a safe-haven asset, the precious metal has seen only limited support. This is partly because the conflict has kept crude oil prices elevated, reinforcing inflation concerns and expectations of prolonged restrictive monetary conditions by the Fed. However, geopolitical uncertainty may still prevent a deep correction in gold prices.
Central-bank demand continues to provide structural support for gold. In Q2 2026, central banks purchased a net 289 tonnes of gold, bringing the total for the first half of the year to 345 tonnes. Strategic accumulation is expected to continue, driven by reserve diversification, geopolitical uncertainty, and inflation hedging. The World Gold Council anticipates central banks will remain significant buyers for the rest of 2026.
Looking ahead, gold is likely to remain range-bound, caught between elevated Treasury yields, a strong dollar, and potential further Fed tightening on one side, and geopolitical uncertainty, persistent inflation concerns, and central-bank accumulation on the other. While a mild positive bias towards year-end is possible, major rallies or prolonged sell-offs appear unlikely under current conditions.