Why Gold Can Maintain $4,000 Despite High Interest Rates

One reason gold is supported even at high interest rates is that some buyers do not choose assets based solely on the amount of interest, but hold gold as a hedge against concerns over currency value and government fiscal health.

In market reports from October 5, 2026, physical gold was priced at $4,140.47 per troy ounce (approximately 31.1 grams), and the yield on the U.S. 10-year Treasury note was 5.308%. Yield is the ratio of earnings obtained relative to the purchase price. Even in a situation where high yields could be obtained from government bonds, gold remained above $4,000.Investing.com article updated October 5

What readers who hold gold should consider is, “With interest rates high, who is buying gold, and for what purpose?” We will examine this starting with explanations from central banks and market reports. However, this is not a guarantee that the $4,000 level can be maintained in the future.

Gold does not earn interest just by holding it

When you hold government bonds, you generally receive interest from the government. On the other hand, physical gold does not generate interest even if held, and it incurs storage costs. To profit from gold, you basically need to sell it at a higher price than you purchased it for.

Therefore, the higher the yield on government bonds, the greater the earnings you miss out on by choosing gold. Government bonds become more attractive, and funds for buying gold are more likely to decrease. This is why “rising interest rates are a headwind for gold.”Deutsche Bundesbank lecture

Looking one step further, real interest rates are important. Real interest rates are interest rates minus the impact of inflation. Even if the interest received increases, if prices rise more than that, the amount you can buy with money decreases, so you cannot judge the attractiveness of government bonds based on nominal interest rates alone.

Even so, what are central banks that hold gold preparing for?

Buyers of gold also include central banks that support the currencies and finances of various countries. Central banks hold foreign currency and gold in preparation for payments during crises and to respond to foreign exchange markets. These assets are called “reserve assets.”

Piero Cipollone, a member of the Executive Board of the European Central Bank, explained in a lecture on October 5 that since 2022, the role of central banks in gold demand has increased, centered on purchases by emerging countries. He also stated that investor participation through gold ETFs (exchange-traded funds that aim to track gold prices) has expanded.Bank of Italy lecture

What central banks prioritize is not just profit. Government bonds depend on the repayment of the issuing government, but physical gold is not an asset based on someone’s promise to pay interest or principal. Joachim Nagel, President of the Deutsche Bundesbank, also mentioned in a lecture on the same day that the significance of holding gold is that it does not depend on the issuer’s payment.Deutsche Bundesbank explanation

The reason for choosing gold here expands from “I want more interest” to “I don’t want to concentrate assets in the credit of a specific country.” The decision to hold gold even at high interest rates can be understood from that objective.

Anxiety about currency and fiscal policy becomes a reason to choose gold

There are two major risks one wants to prepare for. One is the risk that held assets cannot be used when needed. The Deputy Governor of the Bank of Italy explained that the freezing of Russia’s overseas assets has made people aware again of the weaknesses of foreign reserves held abroad.Bank of Italy lecture

The other is the risk that government debt and spending will swell, increasing anxiety about currency value and fiscal sustainability. The Deputy Governor pointed out that such concerns are also supporting gold demand. Even if interest rates are high, if you feel anxious about the future value of money, it becomes a motive to shift part of your assets to gold. However, it is not a rule that if government debt increases, currency will necessarily weaken and gold will necessarily rise.Demand analysis from the same lecture

The tentative hypothesis this time is that demand to prepare for such anxieties is partially mitigating the tendency for gold to be sold due to high interest rates. Reuters also reported on October 5 that market participants view central bank purchases and demand for safe-haven assets as supporting prices above $4,000. This is an interpretation of price formation, and it is impossible to confirm how many dollars each factor supported.Reuters report / Published on Euronext

Even if there are buyers, $4,000 does not necessarily become a floor

There are also opposing factors. According to the same Reuters report, the price of gold had fallen by about 4% since the beginning of the year. Even with central bank demand, it is not completely canceling out headwinds such as high interest rates.Reuters report

Also, you cannot judge additional purchases just by the figure that “the proportion of gold among assets held by central banks has increased.” The held amount and proportion increase just by the rise in the price of gold. In the Deutsche Bundesbank’s analysis, the main reason for the rise in the proportion of gold from 2023 to 2025 was the price increase.Deutsche Bundesbank analysis

Furthermore, even if central banks are buying, if selling by private investors strengthens, prices can fall. You cannot underestimate the risk of a decline in the gold you hold by thinking, “It is an asset held by a central bank, so it is safe.”

What should readers who own gold look for from here?

There are three observation points. In addition to interest rate figures, we will check the behavior of buyers.

• Real interest rates and gold prices. We will observe how much gold falls during periods when interest rates, adjusted for inflation, are rising. If the decline accompanying rising interest rates continues, we will re-evaluate the support from demand other than interest rates as being weaker.

• Central bank purchase volume. We will check the ‘net purchase volume’—purchases minus sales—by weight, rather than the total holdings. If purchases decrease significantly over several quarters, we will reconsider the premise of viewing central banks as continuous buyers.

• Private investor demand for gold. We will look at the weight of gold held by gold ETFs and the inflow/outflow of funds. If fund outflows continue, it will be difficult to maintain the expectation that central bank purchases alone can absorb the selling.

If central bank purchases continue and private demand does not collapse significantly, we will maintain our current hypothesis. Conversely, if buyers decrease and price declines continue under high real interest rates, we will revise our view.

To consider why gold is above $4,000, it is necessary to look at both the interest earned from government bonds and the demand for protection against currency and fiscal anxiety. $4,000 is the price level at the time of confirmation, not a floor price that buyers will protect.

Recommended reading

This article covers private buyers through gold ETFs. Together with the central banks discussed this time, it serves as a clue to see who is buying gold.

In addition to yield figures, this article compares the risks of each asset. The figures in related articles are as of their respective publication dates.

This is a guide for finding related articles based on your holdings.

Main sources

In the ‘Market Map,’ we verify the relationship between interest rates and gold prices when new changes in central bank purchases or gold ETF demand are confirmed. Please follow us if you would like to continue thinking about how to read the market in connection with your assets.

Disclaimer

This article is based on research and reports confirmed as of October 6, 2026. Prices and yields are observed values as of the date of writing and do not guarantee future levels. Gold, gold ETFs, and government bonds are subjects of observation for understanding the market and do not constitute a recommendation to buy or sell any specific financial product. Please make your own final investment decisions.