Investors have long known a market rule: buy gold when markets are in turmoil.

But this strategy has not worked since September. As oil prices soared and inflation fears resurfaced, gold suffered a sharp rout this month. Meanwhile, tech stocks and even Bitcoin — risk assets that are normally dumped during panic episodes — kept rallying and supported the overall stock market performance.

The most active gold futures contract for December delivery fell 6.6% this month and settled at $4186.70 on Wednesday afternoon. According to Dow Jones Market Data, this marks gold’s worst monthly performance since June. In contrast, equities fared much stronger. The Nasdaq Composite rose 2.5% in September while the S&P 500 edged up 0.1%. Even Bitcoin, the world’s largest cryptocurrency and a highly volatile asset, broke above $86,000 and gained 7% in September, nearing its highest level for the year.

Gold Caught in a Tug-of-War Between Inflation and Interest Rates

Nevertheless, gold remains a traditional inflation hedge. As a scarce physical asset, gold prices typically rise when currencies lose purchASIng power amid climbing prices. Therefore, gold is usually the safe-haven choice for investors when oil prices surge, inflation peRSIsts and geopolitical risks heat up.

Currently, however, gold is trapped in a bull-bear tug-of-war.

Soaring oil prices, peRSIstent inflationary pressure and long-running US-Iran tensions should all be bullish for gold. At the same time, rising US Treasury yields and a stronger US dollar are exerting countervailing pressure. The reason is simple: gold bears no interest income. When yields climb, the opportunity cost of holding gold rises. For example, investors can now earn nearly 5% by holding 2-year US Treasuries, which makes non-yielding gold less attractive by comparison.

Kristian Kerr, head of macro and investment strategy at LPL Financial, stated: "Rising interest rates reduce gold’s relative appeal because cash and short-term money market investments can once again deliver positive real returns after inflation."

He noted many investors were also drawn into the speculative gold rally fueled by the record highs reached last year and in early 2026.

A rising US dollar is another headwind for gold. Since gold is priced in US dollars, a stronger dollar raises purchase costs for investors using other currencies, thereby dampening demand.

Per FactSet data, the ICE US Dollar Index (DXY), which measures the dollar against six major currencies, climbed more than 2% in September.

Central Banks Buy Gold Against the Trend

Not all investors are selling gold, though. For governments and central banks, price dips may be viewed as buying opportunities.

China’s central bank added more than 20 tonnes of gold reserves in August, equivalent to roughly 650,000 troy ounces. This represents its largest monthly purchase since 2023. Official data shows the purchase extended China’s consecutive gold buying streak to 22 months.

Joe Cavatoni, head of public policy for the Americas and senior market strategist at the World Gold Council, said: "China and many other central banks are thinking about reserve strategies and the benefits of asset diveRSIfication from a broader perspective."

In other words, governments buy gold not mainly in response to short-term inflation or yield swings, but for reserve security.

For decades, governments and central banks worldwide have held gold as financial protection against economic uncertainty, inflation risks and geopolitical conflicts. They aim to reduce reliance on the US dollar and mitigate risks of asset freezes or financial restrictions.

The World Gold Council’s 2026 Central Bank Gold Reserve Survey shows 89% of reserve managers expect global central bank gold holdings to keep rising over the next 12 months.

Cavatoni said the survey also indicated central banks expect the US dollar’s share in foreign exchange reserves to decline over the next five years. "Gold’s role as a monetary asset remains firmly on reserve managers’ radars," he commented.

ETF Investors Keep Adding Gold Holdings

Beyond central banks, investors are still buying gold.

Aakash Doshi, global head of gold markets at State Street Investment Management, said gold-tracking exchange-traded funds (ETFs) continue to attract strong capital inflows.

Data compiled by State Street shows US-listed gold ETFs kept expanding positions in September, with net inflows of $3.8 billion, following $7.9 billion of net inflows in August.

Doshi said robust ETF inflows reinforced his team’s confidence in the long-term bullish case for gold, despite Fed rate hikes and the September price pullback.

"We view these as structural allocations. Investors are buying gold as a monetary alternative asset, non-dollar asset and portfolio diveRSIfier," he explained.

Bond Market Risks May Revive Gold’s Safe-Haven Demand

Doshi observed short-term US Treasury yields have risen faster than long-term yields recently, narrowing the spread between them — a development known as a bear flattening.

This dynamic may add pressure to economic growth, as consumers and businesses face higher loan and financing costs.

Therefore, even though rising rates typically weigh on gold, Doshi stated: "This may reinforce gold’s role as a safe-haven and low-correlation asset."

A low-correlation asset refers to an investment whose price movements do not fully synchronize with other assets.

Regarding the appropriate gold allocation for retail investor portfolios, Chris Gaffney, president of world markets at EverBank, recommended investors consider allocating up to 10% to gold. "The recent modest pullback in gold is viewed by many as an opportunity to build positions," he said.