Gold Faces New Challenges: Dual Constraints from Inflation and Interest Rate Pressures

Overview

This report highlights new challenges facing gold, as its price has deviated from the traditional negative correlation with oil prices, primarily due to persistent inflation and rising real interest rates. Additionally, global bond market turbulence is exerting pressure on gold. The institution believes gold's performance may be constrained in the short term, but the medium-to-long-term outlook depends on Fed policy shifts and inflation data changes.

Core views

Gold prices have significantly deviated from their negative correlation with oil prices, mainly due to persistent inflation and rising real interest rates. The report notes that while real interest rates rose by only 48 basis points over the past year, they experienced a 270-basis-point surge in 2022, when strong gold demand (716 tons) effectively offset the negative impact of rising rates. Currently, simply linking gold prices to interest rate movements may be overly simplistic. On the demand side, central bank and bar demand exceeded expectations in Q1 2026, but ETF demand fell 78% YoY, indicating a structural shift in gold demand. Meanwhile, increased recycled gold supply could pose a downside risk. Macro-wise, the report emphasizes that gold's pricing logic relies more on expectations of high inflation and hawkish monetary policy. Recent bond market volatility, particularly in the U.S., U.K., and Japan, reflects global capital flow changes. In this context, gold's performance is influenced not only by monetary policy but also by market expectations for future economic prospects. Thus, gold's short-term movements may largely reflect sensitivity to policy communication and inflation data.

Analysis framework

The institution first reviews historical data to establish an analytical framework, noting that the 2022 surge in real interest rates did not lead to lower gold prices but was balanced by a sharp rebound in demand. This suggests current market predictions about interest rate impacts may be oversimplified. The analysis then examines structural changes in gold supply and demand, particularly the divergence between declining ETF demand and rising central bank/bar demand. Next, it focuses on macroeconomic variables, highlighting gold's pricing mechanism's close ties to real rates, inflation expectations, and monetary policy. By comparing U.S. 10-year nominal vs. real rates and their relationship with crude oil futures, the report reveals heightened market sensitivity to long-term energy price expectations. Finally, the analysis expands to global bond markets, identifying current turbulence as a key external factor driving gold prices lower.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Gold Market Supply-Demand Structure Analysis

  Analyzes gold supply and demand structures to identify market trends (e.g., ETF demand decline vs. central bank demand rise) and determine gold price drivers

• Macroeconomic frameworkThree-Factor Interest Rate Decomposition

  Impact of Interest Rates on Gold Pricing

  Examines how nominal rates, real rates, and inflation expectations affect gold prices to understand their complex relationship

• Cycle & Sentiment FrameworkInventory cycle (Kitchin)

  Impact of Gold Recycling Cycles on Supply

  Observes changes in gold recycling volumes to assess supply-side elasticity and evaluate potential downside risks for gold prices

• Industry/Sector Analysis FrameworkVolume-Price Breakdown

  Gold-Oil Price Relationship

  Compares gold and oil price trends to identify root causes behind gold's deviation from traditional correlations

Key data

• 2026 Q1 ETF Gold Demand62 tonsDown 78% YoY, below prior-year levels
• 2026 Q1 Gold Recycling Volume366 tonsFull-year recycling projected at 1,470 tons
• 2022 Real Rate Adjustment270 bpsOffset by 716-ton gold demand volatility that year
• 2026 Real Rate Adjustment48 bpsSignificantly slower than 2022

Impact & implications

Recent gold price weakness reflects market concerns about persistent inflation and high-rate environments. If inflation continues and real rates stay elevated, gold may face further pressure. However, any signs of Fed policy shifts or cooling inflation could provide support. Changes in gold demand structure—particularly ETF demand recovery—may also boost prices. Thus, future monitoring should focus on global inflation data, Fed policy moves, and recycled gold supply trends.

Risks

• Persistent global inflation keeping real rates high
• Uncertainty in Fed policy path
• Slower-than-expected ETF demand recovery
• Price pressure from rising recycled gold supply

What to watch

• Global inflation data, especially U.S. CPI and PCE
• First meeting chaired by Fed Chair Kevin Warsh
• Gold ETF demand recovery
• Global bond market volatility trends