Gold is about 28% below its record in a year that seemed made for it
On January 29, 2026, gold traded as high as $5,595.47 an ounce. That is its record on the spot price, the price at which gold changes hands at any moment of the trading day, though data providers differ slightly on the exact figure. During trading on October 28 it stood near $4,049. That was about 28% below the record and about 6% lower than at the start of the year. Gold also has a benchmark price, set in London by auction twice a day. According to the World Gold Council (WGC), the gold industry's research body, that benchmark peaked at $5,405 on the same day. Measured on the benchmark, the fall is closer to 25%. The fall comes close to 30% only when the intraday spot record is compared with the intraday low of $3,986.50 on October 23, which was about 29% below the record.
This happened in the kind of year that the popular story says is good for gold. The United States and Israel struck Iran on February 28. According to a market commentary by the broker OANDA, the international oil benchmark, Brent, went from about $73.50 a barrel to about $120 in early March. US consumer prices rose 3.7% in the year to September. Both war and inflation were present, and gold fell anyway.
Part of the answer is how far gold had already risen. In 2025 it gained roughly two thirds, with the exact figure depending on the price series used, and that year is often described as its best since 1979. Some of this year's fall therefore gave back a very fast climb. The rest of the answer lies in what it costs to hold gold.
Gold fell twice this year, for different reasons
The fall from the record was not one long slide. By June 24, spot gold had already touched $3,959.33, about 29% below the record. According to OANDA's commentary, gold fell in March, as the war began, while investors rushed into US dollars for cash. The WGC has a model that splits gold's returns by cause. For the first half of the year, it put 24% of the month-to-month variation in gold's price down to momentum, meaning investors following the trend and taking profits after 2025. It put 17% down to risk and uncertainty, 14% to currencies and only 3% to interest rates, whose effect it called mixed. It left 30% unexplained. These figures are shares of how much the price moved around, not shares of the fall.
Gold then climbed back to about $4,658 by August 25 on one official reference price, and fell again from September into October. These two falls need two explanations. Higher bond yields and a stronger dollar have the best-documented role in the second one, and that is the one this piece follows.
Holding gold costs you the interest you give up
Gold pays no interest and no dividend. Owning it means giving up what the same money would earn somewhere safe, such as a US government bond. What counts is not the rate printed on the bond but what it pays after inflation, which is called the real interest rate. If a bond pays 5% and prices rise 2% a year, the real return is about 3%.
Markets quote this rate directly. The US Treasury sells bonds whose value rises with inflation, known as TIPS, and their yield is the real return investors demand. When that yield goes up, so does the cost of holding gold instead.
Inflation was high, but bond markets priced in little more of it
US consumer prices rose 3.7% in the year to September, according to the Bureau of Labor Statistics. Much of that rise came from energy. Gasoline prices were up 34.2% and energy as a whole 20.4%. Excluding food and energy, prices rose 2.6%.
Bond markets did not price in much more inflation ahead. One measure of the inflation investors expect is the gap between the yields on ordinary and inflation-linked 10-year Treasuries. According to one analysis of Federal Reserve data, that gap was 2.36% on October 5, almost the same as the 2.34% of a year earlier. The ordinary 10-year Treasury yield itself was 5.31%. The real rate reached 2.95% on October 5, its highest close since November 2008, up from 1.84% a year before. On those figures, with expected inflation almost unchanged, nearly all of the rise in yields was a rise in the real rate. These daily figures come from a secondary analysis, and they were not confirmed against the official daily series when this piece was checked. A single reading of the gap also does not show how long investors expected inflation to last.
On the same figures, the real rate rose from 2.55% to 2.95% between September 10 and October 5. Over the same weeks, an official reference price for gold fell from $4,407 to $4,183, about 5%. In this stretch, high inflation came with a higher return on safe bonds, and so with a higher cost of holding gold, while gold fell. The timing fits that explanation, but on its own it does not prove it.
The Fed raised rates and the dollar rose
On September 16 the Federal Reserve, the US central bank, voted 12 to 0 to raise its policy rate by a quarter point to a range of 3.75% to 4%. It was the Fed's first increase since 2023. According to the WGC, the 10-year Treasury yield rose 0.53 percentage points in September to 5.3%, and an index of the dollar against major currencies rose 2%. Gold ended the month at $4,176, down 8.5%. The WGC named higher Treasury yields, the stronger dollar and reduced futures positions as major contributors to that fall.
The dollar matters because gold is priced in dollars. When the dollar rises, gold costs more for buyers paying in other currencies. The Fed met again on October 27 and 28, and markets largely expected it to leave rates unchanged. Its decision was due after this piece was written.
Central banks bought a second-quarter record, and the price fell anyway
Central banks bought a net 289 tonnes of gold in the second quarter, the most for any second quarter in WGC records. That figure is easy to over-read. The WGC's revised figure for the first quarter is only 57 tonnes, so central banks bought 345 tonnes in the first half, the lowest first-half total since 2022.
Gold funds traded on stock exchanges, known as ETFs, sold a net 45 tonnes in the second quarter. The WGC linked those outflows, particularly in North America, to higher expected inflation and interest rates and to a stronger dollar.
In the third quarter the funds turned around, yet the price still fell. According to figures reported by Kitco, investors put a record $31 billion into gold ETFs. In September, however, traders in gold futures cut their bets on a rising price by about $12 billion, or 84 tonnes. Futures are contracts often bought with borrowed money. Different buyers respond to different things. Central banks follow long-term reserve plans, while futures traders tend to respond to the cost of money week by week. These flows show buyers pulling in opposite directions. On their own, they do not show which group moved the price.
Reports disagree on why gold fell on October 23
Gold fell below $4,000 for the first time since July, to a reported low of $3,986.50 on October 23. Accounts of why differ. A Reuters report carried by Kitco linked the drop to rising oil prices, which fed worries about inflation and strengthened expectations of another Fed rate increase. The Associated Press reported Brent at $116.72 a barrel and the 10-year Treasury yield at 4.99% that day.
One market analysis site, TradingKey, gave a different explanation. Technology shares, silver and copper were sold off at the same time as gold. TradingKey said investors were selling whatever was easiest to sell in order to cut positions held with borrowed money. For comparison, the 10-year real yield stood at 2.64% on October 22, below its early October peak. The reports available do not settle which explanation mattered more.
When investors rush for cash, an asset known as a safe haven can be sold like anything else, precisely because it is easy to sell. Whether that is what happened on October 23 remains open.
The link to real rates is a pattern, not a law
From 2005 to 2021, gold and the real yield moved closely in opposite directions, with a correlation of 84% on RBC Wealth Management's measure. In 2022 and 2023 that figure fell to 3%. Real rates rose sharply, yet gold held up and went on to new records. The usual explanation is that central banks were buying more than 1,000 tonnes a year for reasons that have nothing to do with interest rates.
The asset manager Janus Henderson reads this as the floor moving. In its reading, central bank buying raised the level at which gold trades, while real rates still drive much of its short-term direction. This year fits that reading in the autumn and fits it less well in the spring. A relationship seen over one period promises nothing about the next.
Gold competes with what safe money pays
War and inflation do not guarantee a rising gold price. Gold also competes with what safe money pays after inflation. This year inflation rose, but the bond market's inflation gauge barely moved. On the figures above, bond yields rose mostly in real terms, the Fed added a rate increase, and the cost of holding a metal that pays nothing went up. That fits the September fall better than the war does.
It does not explain everything. The spring fall had more to do with a huge rally unwinding, and the October 23 drop has competing explanations. Nothing in these numbers says which way any of them will move next.
