Gold is set to post a weekly decline. Elevated energy prices keep reinforcing market concerns over sticky US inflation and prompting investors to bet on further Fed rate hikes. Meanwhile, long-term US Treasury yields have climbed to multi-decade highs and the US dollar has strengthened consecutively, jointly weighing on gold prices.
As of Friday’s ASIan session (Sep 25), spot gold traded near $4270 per ounce, down more than 2% from last Friday. Spot silver stood at roughly $63.68 per ounce, with a weekly loss close to 4%. Platinum and palladium saw little change.
PeRSIstent Pressure from Fed Rate Hikes
The core drivers behind gold’s recent moves have increASIngly centered on the interplay between energy prices, Fed policy and bond yields.
Oil prices stabilized temporarily after a sharp rise on Thursday. The US and Iran have yet to reach a breakthrough on resuming energy shipments through the Strait of Hormuz, though negotiators are reportedly exploring a phased agreement that may include Iran reopening this critical waterway and the US lifting some port blockades.
As the Strait of Hormuz ranks among the world’s most vital energy shipping lanes, markets closely monitor any shifts that may disrupt crude supply. Sustained high energy costs will not only push up gasoline, transportation and production expenses directly, but may also slow the overall decline of inflation. This stands as one of the biggest headwinds for gold in the short run.
The Fed delivered its first rate hike in three years last week, and markets are still assessing whether peRSIstently high energy prices will force further monetary tightening.
For gold, higher policy rates normally mean higher opportunity cost of holding the metal, since gold itself generates no interest income.
30-Year US Treasury Yield Approaches 5.5%
Another direct pressure on gold comes from the US Treasury market. Treasury sell-offs intensified on Thursday. Beyond rebounding oil prices reigniting inflation fears, the scale of US government debt and its fiscal outlook also make investors demand higher compensation for long-term yields. The 30-year US Treasury yield briefly neared 5.5%, hitting the highest level in more than two decades.
Wall Street is reassessing the possibility that long-term Treasury yields around 5% may become the new market norm, compared with the low-rate environment prevailing over the past decade.
This shift is especially meaningful for gold. When US Treasuries offer risk-free yields close to or above 5%, non-interest-bearing gold faces stiffer capital competition. At the same time, high yields tend to support the US dollar, making dollar-denominated gold more expensive for non-dollar investors.
The US Dollar Index was largely steady on Friday, after five consecutive trading days of gains.
Goldman Sachs Cuts Year-End Target
Still, despite the obvious deterioration in the short-term outlook, some large institutions maintain that gold’s long-term bull market is not over.
Goldman Sachs lowered its fair-value forecast for gold at end-2026 from $4900 per ounce to $4650 per ounce, while retaining its end-2027 target of $5400 per ounce.
Goldman Sachs believes Fed rate hikes are merely delaying gold’s rally rather than reveRSIng its long-term trend. The bank expects that after the September hike, the Fed may raise rates further in October. Tighter monetary policy may continue to curb inflows into gold ETFs in the short term, while a stronger dollar and higher bond yields will cap gold’s rebound.
However, Goldman Sachs notes that a large portion of the impact from monetary tightening has already been priced in via falling ETF holdings and the recent gold correction.
Compared with the spot price around $4300 at present, Goldman Sachs’ latest year-end fair value of $4650 remains above the current level.
Central Banks Buy Roughly 90 Tons of Gold Monthly
The most important factor underpinning Goldman Sachs’ long-term bullish view on gold is not the Fed, but sustained large-scale gold purchases by global central banks. Goldman Sachs estimates that official sector gold purchases now stand at roughly 90 tons per month, far above the average of about 17 tons per month before 2022.
In other words, the current pace of central bank gold buying is more than five times the normal historical level.
Goldman Sachs argues this structural demand will act as a key pillar for gold prices going forward, and projects central bank purchases will account for the bulk of the roughly 23% gold price gain it forecasts by the end of 2027.
This explains why even as Goldman Sachs acknowledges that additional Fed hikes will pressure gold, it has not revised its medium-to-long term target of $5400 by end-2027.
What Is the Real Risk for Gold?
Goldman Sachs also warns gold could see a deeper correction if the Fed’s policy path turns more hawkish than currently expected.
Put differently, gold’s next price action will be pulled by two opposing forces. On one side, high oil prices, sticky inflation, Fed rate hikes, rising Treasury yields and a stronger US dollar are weighing on gold’s short-term performance. On the other side, peRSIstent large-scale gold purchases by global central banks and long-term asset allocation demand continue to offer structural support.
Australian hedge fund manager Raphael Lamm also holds the view that gold’s recent decline is more of a phase correction, and the main drivers behind its long-term uptrend remain intact. His long-short gold fund has delivered net returns exceeding 200% to investors since its launch last year.
Therefore, what the gold market truly needs to watch now is no longer merely whether the Fed will deliver the next rate hike.
The more critical questions are: how long high oil prices will keep US interest rates elevated, and whether global central banks can maintain the monthly buying pace of nearly 90 tons. If the former strengthens further, gold may stay under short-term pressure. But if the latter remains robust, it remains to be seen whether this correction marks a trend reversal or just a repricing within the long-term bull market.