In 2026, the gold market has been exhibiting a deeply contradictory phenomenon. While geopolitical risks and fiscal pressures should provide robust safe-haven support for gold, the sustained rise in real interest rates, which increases the opportunity cost of holding the metal, has continuously suppressed its price performance. The market's focus has shifted from the high level of real interest rates to whether they will continue to climb. Many institutions judge that the room for further rate increases is limited, suggesting that the biggest bearish factor for gold may gradually dissipate.
The market's monetary policy expectations have undergone a dramatic reversal this year. At the beginning of the year, investors widely anticipated that the Federal Reserve would implement one to two rate cuts. However, as inflation data has proven volatile, the market has begun to price in the possibility of a rate hike. According to calculations by Jefferies, the yield on 10-year Treasury Inflation-Protected Securities rose from 1.94% at the start of 2026 to 2.41%. This rapid shift in expectations has caused gold prices to fall approximately 25% from their cyclical peak. Despite facing such strong headwinds, gold has resiliently held the key psychological support level of $4,000 per ounce. Data from the World Gold Council shows that gold prices largely fluctuated around $4,027 in July. Even as the real yield on German government bonds hit a 15-year high, European gold ETFs continued to see inflows, reflecting substantial buying power at the bottom and indicating that gold has largely absorbed the negative impact from rising opportunity costs.
Institutional View: Stabilisation, Not Cuts, Are the Catalyst
BCA Research stated in its latest report that the most difficult phase of real interest rates suppressing gold has likely passed. Roukaya Ibrahim, the firm's chief commodity strategist, noted that for gold to start a new rally, it does not require the Fed Chair to implement rate cuts; it is sufficient for real interest rates and the US dollar to stop their upward trend, which would be enough to drive gold prices higher. Jefferies further supports this logic by reviewing historical trends. They found that after gold experiences a shock from rising real rates, the subsequent trend is not entirely dependent on the absolute level of rates, but rather on whether the momentum of the rate increase can subside. With the market's repricing of monetary policy largely complete, once the upward pressure on real rates eases, a foundation for recovery exists for both gold and gold mining stocks.
The Structural Bull Case Remains Intact
While the headwinds suppressing gold prices are expected to ease, the underlying support for gold remains solid. Central banks around the world continue to increase their gold reserves. The long-term themes of de-dollarization, fiscal concerns in various countries, and global geopolitical uncertainty remain dominant market drivers. BCA Research suggests that while central bank buying may not be able to propel gold prices explosively higher, official sector demand can still provide a solid floor for prices. The driving effect of inflation on gold also needs to be viewed dialectically. The World Gold Council indicates that higher inflation is not always bullish for gold. Its supportive effect is fully unleashed only when inflation exceeds 4%, accompanied by a decline in real interest rates, a weaker US dollar, or a rise in recession risks. In summary, being bullish on gold does not require extreme scenarios like a severe economic recession or emergency monetary easing. As long as the negative factors suppressing gold prices do not worsen, the market is poised for a turnaround. After enduring a significant shock from opportunity costs, gold may have reached a critical inflection point. If real interest rates are confirmed to have peaked, the biggest past headwind will transform into the core driver for gold prices to rise. Spot gold was trading at $4,324.06 per ounce as of 10:18 AM Beijing time on August 10.
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