Why Is the Gold Price Falling Even as Investors and Central Banks Pile In?

Key Takeaways

• Gold fell by 26% since its January record, as higher Treasury yields made cash and bonds more attractive.

• ETF investors kept buying, while futures traders sold. Physical demand has also softened.

• According to fund managers, gold’s bull market could resume if the Fed or Treasury caps yields, while the main risk is stubborn inflation forcing more hikes.

  
  

Gold is no longer a one-way bet. Spot prices for the precious metal fell to USD 4,093 an ounce on Oct. 14, down 3.4% over the past month and 26% below its record of USD 5,595, set on Jan. 28, ahead of the Iran war. That peak followed a 64% rally in 2025.

The trend’s immediate cause is the bond market. The Federal Reserve raised rates by a quarter point on Sept. 16, its first hike since July 2023, and 10-year and 30-year Treasury yields reached 24-year highs on Oct. 7, at 5.35% and 5.72%, respectively. “Higher interest rates are causing the pullback in gold,” says Rick de los Reyes, head of commodities at T. Rowe Price. “Gold is basically the inverse of fiat currency. When real interest rates are rising, dollars become more valuable relative to gold.” He reminds investors that gold is a store of value but pays no interest. The real interest rate is the nominal interest rate minus the rate of inflation.

Charlotte Peuron, thematic equities portfolio manager at Crédit Mutuel AM, describes the mechanics: “Long-term Treasury yields are rising faster than inflation expectations, which pushes real rates higher, and a volatile dollar adds to the pressure.” She expects volatility to persist for months, given Middle East and Ukraine conflicts, energy prices, and the US midterm elections.

That matches the account from Ned Naylor-Leyland, who runs the Jupiter Gold & Silver Fund. “The trigger was a rally in front-end real rates, and that with forward inflation expectations unmoved, speculators including hedge funds and trend-following traders unwound their long positions,” he says.

An Exceptionally Turbulent Year for Gold

The fund flow data reveals a market that swung hard through the year. Morningstar figures for global gold exchange-traded funds show a net USD 8.6 billion inflow in January, then a USD 12.7 billion net outflow in March, the largest monthly redemption of 2026. Overall, the first half of 2026 saw USD 4 billion of net outflows. Then came a reversal. Global gold ETFs took in USD 17 billion in August, the biggest monthly inflow of the year, as gold rallied and fiscal worries grew.

The World Gold Council linked August’s strength to concerns about Treasury market stability after the US Treasury’s Aug. 19 intervention, when it announced it would “at least double” the amount of older long-term debt it purchases, which revived fears of dollar debasement.

Then September brought something unusual: High gold fund inflows despite falling gold prices. ETF investors added another USD 6.8 billion, taking the year-to-date total net inflows to USD 21.3 billion, even as gold fell and the Fed hiked. By the WGC’s count, gold lost more than 8% over the month, while global ETF holdings rose by more than 70 tons, which it described as “highly unusual.” The WGC said it has never observed a month combining moves of that size.

Over the month, gold futures positions dropped by the equivalent of 84 tons, and a category of positions often associated with calendar spreads between futures maturities fell by 156 tons. The WGC says those moves help explain how prices weakened despite strong ETF demand.

Physical demand was also softening. WGC data shows that in the second quarter jewelry demand touched its lowest quarterly volume since the pandemic, at 278 tons, down 17% year-on-year as high prices weighed on consumers. In India, volumes fell 6% year-on-year over the same period. Prime Minister Narendra Modi has also urged citizens to avoid buying gold unless necessary—his second such appeal this year—to help conserve foreign exchange reserves held in India amid the economic fallout of the Iran conflict.

Who Really Sets the Price of Gold?

Gold demand from central banks remains the structural bull case for the commodity, though the year has marked a slowdown of this trend. According to the WGC, in the first half of the year global central banks purchased 345 tons, the lowest level since 2022, because of heavy sales by Turkey, Russia and Azerbaijan. August purchases were 39 tons, taking the year-to-date total to 170 tons, led by China, Uzbekistan and Poland. The WGC expects full-year official demand to finish below 2025’s total.

However, intent remains strong. In the WGC’s 2026 survey of 76 central banks, 89% expected global gold reserves to rise over the next 12 months, and a record 45% expected to add to their own.

The gold market is small relative to national reserves, De los Reyes notes, so diversification takes years. “Despite significant buying from China, gold accounts for less than 10% of China’s reserves, compared with more like 30% for many developed economies. I suspect that central bank buying will be a tailwind to gold demand for a long time to come,” he says.

Naylor-Leyland disagrees on account of the gold derivatives market being much larger than the volumes bought by central banks. “Central bank demand has had absolutely nothing to do with price action,” he argues. “Gold trades half a trillion to a trillion dollars a day, so price discovery happens through synthetic over-the-counter contracts, not physical flows.” September’s gold price decline despite strong physical-backed ETF buying fits his argument more than a pure flows story.

Where Will the Price of Gold Go Next?

Now, all eyes are on the Fed’s next moves. “The latest US Consumer Price Index report complicates the Fed’s decision this month, as the road back to price stability is looking increasingly difficult to navigate,” says Jeffrey Roach, chief US economist for LPL Financial.

US CPI increased 0.6% in September, a larger-than-expected uptick from August’s 0.4% jump. Even though energy has driven inflation in recent months, nonenergy prices surprised to the upside: Month-over-month core inflation held steady at 0.3%, defying expectations for a slowdown to 0.2%.

However, according to the CME FedWatch Tool, markets still price an 85% chance the Fed holds at its Oct. 27–28 meeting, but December hike odds stay elevated.

“As and when the Fed or the Treasury intervene to stop these spiking bond yields, then the secular bull market for monetary metals will resume,” says Jupiter’s Naylor-Leyland. In his view, Treasury Secretary Scott Bessent has yet to open his toolbox, and he expects a “coming era of Treasury yield curve control.”

“In the short term, gold is likely to trade within a tight range,” says Peter Kinsella, head of investment services UK at Union Bancaire Privée. “The most pressing upside risk for gold in the coming months would be a potential revaluation of the US Treasury’s gold holdings. A revaluation toward current market prices would implicitly devalue the dollar relative to gold, thus sending a strong signal to the market and potentially restarting the ‘debasement trade’ which played out in 2025,” he adds.

The US Treasury carries its 261 million ounces of gold at the statutory price of USD 42.22 per ounce, set in 1973, when it was worth about USD 4,100 per ounce on the open market. So, the book value (USD 11 billion) is a tiny fraction of the current market value (close to USD 1 trillion). Although there is currently no indication the US government intends to revalue its gold reserves, the debate has quietly returned to mainstream discussion, as such a move would—on paper—inject massive liquidity into the Treasury, ease bond market pressures, and help manage growing government debt levels.

At the same time, De los Reyes names the main downside risk in historical terms. “The bear case for gold would be if inflation in the US remains so stubborn that the Federal Reserve is forced into significantly increasing interest rates,” he said. “That is what happened in the late 70s and early 80s under Paul Volcker, and a long-term bear market in gold ensued. I don’t think that’s going to happen this time.” He expects inflation to fall over the course of 2027, leaving little need for additional hikes.

The WGC’s outlook is cautious on timing: It expects investment to be the main source of demand growth through the rest of 2026, but a repeat of 2025’s exceptional strength looks unlikely. Meanwhile, in gold trading firm Kitco Metals’ latest weekly survey, 50% of Wall Street analysts expected higher prices and 14% expected lower ones.

Source: Morningstar, 19th of October 2026.