Reasons for the decline in gold prices: Rising real interest rates in the United States

丹湖渔翁2026/06/26 07:35

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By:丹湖渔翁

My new book, "Crossing the Natural Interest Rate Trap" has been published. Introduction can be found at,. Color illustrations in the book can be found at.It is recommended to purchase the official copy from Tmall and JD.com.

Let's talk about the recent gold price.

I. No longer long-term bullish on gold, now cautious about gold prices in the long run

In September 2025, I once said I was long-term bullish on gold, based on the logic that dollar hegemony was declining (). In the early morning of January 30, 2026, I felt that the recent gold price rose too quickly and started to be bearish on gold in the short term (which happened to be at the highest point), but I was still bullish for the long term (), my logic hadn’t changed. Even until March 20, while I was bearish on gold in the short term, I still thought it would rebound in the long term ().

However, my thinking has changed now. I think the AI revolution will make the US natural interest rate rise relative to the Eurozone, UK, Japan, and so forth, keeping the dollar strong. This is negative for gold prices. For details, see From Natural Interest Rate Parity: Why the Dollar Index is Expected to Remain Strong in the Long Run.

II. Reasons for the recent drop in gold prices

Previously, in March, during the height of the US-Iran war, when crude oil prices spiked, gold prices dropped. At that time, I explained that investors, needing liquidity, sold off gold （see ,） .

Now the US and Iran have reached a "Memorandum of Understanding", the war has eased, and crude oil prices fell rapidly from above $90/barrel to above $70/barrel, yet gold and silver prices are still falling. This week, London gold has dropped below $4,000/oz, and silver to $56/oz. Why is this?

Actually, the reason is simple: the real interest rate implied by nominal US Treasury yields has increased.

Figure 1 shows Brent crude prices and US inflation expectations. Since May, US inflation expectations have declined alongside the drop in oil prices (red line).

Figure 1 Brent crude prices and US inflation expectations

Figure 2 shows that while inflation expectations (red line) dropped, US Treasury nominal yields (green line) did not fall synchronously. This is because many on Wall Street expected rate hikes. As I previously analyzed (,), those people are full of nonsense. After the FOMC statement released early morning on June 18, the market again expected rate hikes in the second half of the year (click here). This expectation has kept US Treasury yields high. It was only this week that yields began to drop significantly.

Figure 2 Inflation expectations declined, real interest rates rose
When nominal yields decline slowly but inflation expectations fall rapidly, the result is that the real rate implied in nominal yields (the blue line in Figure 3) rises. And gold price moves inversely with real rates. Hence, gold prices fell.

Figure 3 Gold prices and real interest rates

As can be seen from Figure 3, there is a perfect negative correlation between gold prices and real interest rates. In fact, for the past six months, this has consistently been the case (see Figure 4), i.e., the behavioral logic of gold investors hasn't changed at all.

Figure 4 Gold prices and real interest rates

When will gold prices stop falling? It requires real interest rates to stop rising. For example, when Wall Street no longer expects rate hikes—or starts to expect rate cuts—US Treasury nominal yields will drop, real rates will drop, and gold prices will rebound.

However, in the long run, if the AI revolution leads to strong US economic growth, the natural interest rate will inevitably rise, which would drive up real rates—a negative for gold.

III. Gold stocks

Lastly, to add, gold prices and gold stocks are two entirely different things. The former is about price speculation, the latter is essentially about profit speculation.

Only when gold prices keep rising persistently and strongly will gold stocks rise. If gold prices move sideways or adjust, gold stocks will fall.

From January 30 to today, the gold stock index has dropped 48% (compared to a 29.5% drop in gold prices during the same period), falling back to levels of September 1, 2025 (see Figure 5). At that time, gold was just $3,400/oz.

So the average investor should avoid gold stocks. There are always painful lessons behind it.

Figure 5 Gold Stock Index (882415.WI)

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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