[9/29] Gold price drops 4% and the impact of geopolitics through interest rates
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The spot price of gold fell by 4% at one point on September 28, Japan time, reaching $4,111 per ounce. This is the lowest level since August 5. The trigger was the rise in crude oil prices after President Trump rejected Iran’s proposal to reopen the strait, which strengthened expectations of a US interest rate hike. Middle East tensions usually invite buying of gold as a safe-haven asset, but this time it has worked in the opposite direction. Meanwhile, central banks continue to make record purchases even as prices fall. On the same day, Australia’s largest gold mining company rejected a major acquisition proposal. I will explain the factors behind the decline in gold prices and the differences in movements among the various entities buying gold.
Scale of the decline
Gold prices fell significantly in a single day on September 28, Japan time.
Gold price levels
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Intraday low: $4,111 per ounce, since August 5
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At market close: $4,122.66
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Change from previous day: 3.79% decline
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All-time high: January 28, $5,589.38
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Decline from all-time high: approximately 26%
On the same day, silver fell by about 5% to the $61 per ounce range.
Changes by period
The assessment varies greatly depending on the period being viewed. While it is about 26% lower than its all-time high, it still maintains an increase compared to one year ago.
2026 has been a year of high volatility for gold prices. After hitting an all-time high on January 28, it fell to near $4,000 at one point, and recorded its sharpest decline since 2013 in the April-June quarter. After recovering in August, it has fallen again since the beginning of September.
The chain reaction from high crude oil prices to interest rate hike expectations
The direct trigger for the decline was President Trump’s rejection of Iran’s proposal to reopen the Strait of Hormuz. Following this decision, Brent crude oil has risen to around $107 per barrel.
Geopolitical tensions in the Middle East usually invite buying of gold as a safe-haven asset. This time, rather than that path, the path where high crude oil prices intensified concerns about rising prices and increased expectations for a US interest rate hike prevailed.
Probability of an October rate hike
These figures are from the CME FedWatch tool and vary depending on the time and reporting. The CME is an exchange that handles interest rate futures, and it calculates the probability of a rate hike based on futures prices.
In one month, the expectation for a rate hike has surged from less than 10% to nearly 70%. The Federal Reserve raised the policy interest rate from 3.75% to 4.00% on September 16, and the view that has strengthened this time is for a second consecutive rate hike. The next meeting will be held from October 27 to 28.
Tim Waterer, Chief Market Analyst at KCM Trade, stated the following to CNBC:
The combination of higher bond yields and higher oil prices continues to weigh on gold. Oil prices are rising due to uncertain information regarding oil flows, and the issue of inflation is at the center of investors’ concerns.
Cleveland Fed President Mester expressed concern about the risk that persistent inflation would cause the American public to accept high prices as the norm, stating that the central bank cannot allow that to happen.
Rise in U.S. Treasury yields
The strengthening of rate hike expectations has pushed up U.S. Treasury yields.
Levels of U.S. Treasury yields
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10-year note: over 5.2%, the highest level since June 2007
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30-year bond: over 5.3%
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2-year note: rose significantly in September
The 2-year note is the maturity that reacts most sensitively to the outlook for policy interest rates.
Gold is an asset that does not generate interest. When bond yields rise, the interest that cannot be earned by holding gold—the opportunity cost—increases. The rise in yields works to lower the relative attractiveness of gold.
Adrian Ash, Director of Research at the online bullion exchange BullionVault, stated the following to Reuters:
Gold prices have finally turned downward due to U.S. borrowing costs reaching their highest levels in decades today.
The rise in U.S. Treasury yields is occurring in conjunction with weak demand at auctions and an expansion in corporate bond issuance. The decline in gold has taken place within this same interest rate environment.
A Stronger Dollar and Real Interest Rates
The dollar rose to its highest level in about two months. Since gold is traded in dollars, a stronger dollar makes gold more expensive for investors buying in other currencies such as the yen or the euro.
Rising real interest rates are also weighing on gold. Real interest rates are calculated by subtracting inflation expectations from nominal yields. They indicate how much an asset will grow above the rate of inflation, and as they rise, the relative appeal of non-interest-bearing gold decreases.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, cited the sharp rise in real yields, the stronger dollar, and the breach of the $4,230 per ounce level, stating that gold’s resilience is facing its toughest test yet.
Multiple factors—crude oil, interest rate hike expectations, government bond yields, the dollar, and real interest rates—have all moved in the same direction on the same day.
Movements in Exchange-Traded Funds
There are multiple entities that buy gold, and each has different movements. First, let’s look at the movements of gold exchange-traded funds (ETFs) listed on exchanges.
Trends in Gold ETFs
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Holdings at the end of 2025: 4,025 tons
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May 2026: 16-ton outflow
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August: $18 billion inflow
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Holdings at the end of August: 4,189 tons, an all-time high
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Assets under management at the end of August: $615 billion
Outflows continued in the first half of 2026, including a record-breaking month of outflows in the April-June quarter. The $18 billion inflow in August is the second-largest on record. The World Gold Council published this data on September 9.
Reuters reported on September 28 (Japan Standard Time) that investors are reducing their holdings. The data for September will be released in early October.
ETF investors react sensitively to fluctuations in interest rates and prices, repeatedly buying and selling. This recent decline occurred right after holdings reached an all-time high in August.