What Is Pressuring Gold as It Hits a Two-Month Low?

Jimmy Wong

Gold had a rough week. On Wednesday it dropped to its lowest price in two months. Then on Thursday, something odd happened: U.S. tech shares fell sharply, yet gold went up. By Friday, it was back at about US$4,190 an ounce.

So what is pressuring gold, and why did it bounce? Let's start with the pressure.

Why did gold fall?

Two things moved against it at the same time.

The first is bonds. The U.S. government borrows money by selling bonds and pays interest to buyers. On Wednesday, the rate on its 10-year bond hit 5.35%, the highest since 2002. Think of a savings account that suddenly pays more. Gold pays nothing, so it looks less attractive by comparison.

The second is the U.S. dollar. The dollar index, which tracks the dollar against other major currencies, reached an 18-month high. Gold is priced in U.S. dollars, so a stronger dollar makes it more expensive for buyers in other countries. Fewer buyers mean less support for the price.

What is driving both? Oil is a big part of it. It climbed back above US$100 a barrel on Wednesday, keeping prices higher for everyone. The U.S. central bank, known as the Fed, lifted interest rates last month. Traders now see about an 85% chance of another rise by December.

So why did gold bounce?

On Thursday, the U.S. government sold US$22 billion of 30-year bonds, and plenty of buyers showed up. That calmed the bond market, and the 10-year rate slipped to about 5.23%. The dollar eased too.

Fed official Christopher Waller also said more rate rises are likely, but there is no rush. He said the Fed could pause in October. Oil eased as well, after President Trump said the U.S. will not attack Iran before the 3 November elections.

Was fear pushing gold up? Analysts say no. They say it was lower interest rates, not worry. That means the bounce could fade if rates climb again.

And what about shares?

This is where it gets interesting. On Monday, the Nasdaq, a market full of U.S. tech companies, hit a record high. So shares were not falling alongside gold early in the week.

Then came Thursday. A report said OpenAI told investors its yearly sales were heading toward US$50 billion. That is well below the US$70 billion people had been talking about. Part of the gap is just a different way of counting sales. Still, it made investors ask whether the huge spending on AI will pay off. The Nasdaq fell 1.25%, its worst day since August.

These were two different shocks, but they landed on the same backdrop. With the 10-year rate above 5%, markets have little room for bad news.

Who kept buying?

Central banks did. They bought a net 39 tonnes of gold in August and 170 tonnes so far this year. Poland leads with 98 tonnes. China's central bank has now added gold for 23 months in a row.

The bigger picture

It's easy to read one good Friday as a turning point. The numbers say to slow down. Gold is still about 22% below its January record of around US$5,400. This week was a bounce from a low, not proof that the slide is over.

We'll be watching U.S. inflation figures next week and the Fed's meeting later this month.