Why Gold Is Rising Even as Real Interest Rates Stay High

Gold is doing something unusual.

On 13 August 2025, spot gold traded at about \$3,355.58 per ounce. On 13 August 2026, it was about \$4,386.69 per ounce. “Spot gold” simply means the market price for gold available for immediate delivery. (1, 2)

That gives a 12-month increase of:

Step 1: Find the price increase

\[\$4{,}386.69 - \$3{,}355.58 = \$1{,}031.11\]

Step 2: Divide by the starting price

\[\$1{,}031.11 \div \$3{,}355.58 = 0.3073\]

Step 3: Convert to a percentage

\[0.3073 \times 100 = 30.7\%\]

So gold has risen by roughly 31% in one year.

Normally, we might expect the opposite when real interest rates are rising. Yet over much of 2026, real interest rates rose while gold remained extraordinarily expensive and then began climbing again.

Understanding why requires looking at two different forces: the traditional cost of holding gold and the changing sources of demand for gold.

1. What is a real interest rate?

Suppose you lend someone money and receive 5% interest. At first, it appears that you have become 5% richer.

But imagine prices throughout the economy also rise by 3%. Your money can now buy less than before, so part of your 5% return merely compensates for inflation.

A useful approximation is:

\[\text{real interest rate} \approx \text{interest rate} - \text{inflation rate}\]

Using our example:

\[5\% - 3\% = 2\%\]

Your purchasing power has therefore increased by roughly 2%.

That 2% is the real return: the return after accounting for inflation.

For professional investors, there is a more useful market measure. The United States issues Treasury Inflation-Protected Securities, or TIPS. These are US government bonds whose principal value adjusts with inflation. Their market yield therefore provides investors with a direct measure of the real return available from US government debt.

The 10-year TIPS yield is commonly used when analysing gold.

At the beginning of 2026, on 2 January, the US 10-year real yield was about 1.94%. By early August it had reached about 2.43%. (3)

The increase was:

\[2.43\% - 1.94\% = 0.49 \text{ percentage points}\]

One basis point is 0.01 percentage points, so:

\[0.49 \div 0.01 = 49 \text{ basis points}\]

Real yields therefore increased by roughly 49 basis points during this period.

That matters enormously for gold.

2. Why higher real yields usually hurt gold

Gold produces no income.

A share in a profitable company may pay a dividend. A bond pays interest. A property may produce rent.

A bar of gold produces none of these things.

Its return comes entirely from what someone is willing to pay for it later.

This creates what economists call an opportunity cost. Opportunity cost simply means what you give up by choosing one option instead of another.

Imagine an investor has \$100,000 and can choose between gold and a safe inflation-protected government bond.

If the bond offers almost no real return, giving up that income to own gold costs very little.

If the bond suddenly offers a real return of 2.4%, the choice becomes different. The investor can earn approximately \$2,400 of inflation-adjusted income each year on \$100,000 while holding a US government security.

Gold still pays zero.

Everything else being equal, higher real yields should therefore make bonds more attractive relative to gold.

Federal Reserve Bank of Chicago research describes this relationship in exactly this way: an increase in expected real interest rates should put downward pressure on gold, all else being equal. Importantly, the research also finds that the historical relationship has not been perfectly stable. The strong inverse relationship is particularly visible after 2001 rather than behaving as an unchanging rule throughout modern history. (4)

The words “all else being equal” are crucial.

Because everything else has not stayed equal.

3. Gold has more than one price driver

Real interest rates are important, but they are only one part of the gold market.

Gold can also be affected by the US dollar, expectations about future interest rates, inflation expectations, geopolitical uncertainty, demand from private investors and purchases by central banks.

This explains how gold can rise even while one important force is moving against it.

Think of a boat travelling against a current.

Higher real yields may create a current pushing gold backwards. But sufficiently strong demand from other sources can push the boat forward faster than the current pushes it back.

That appears to be an important part of what has happened in the modern gold market.

The most significant structural change is central-bank demand.

4. Central banks have become major gold buyers

Central banks manage a country’s official financial reserves.

Those reserves can include foreign currencies, government bonds and gold. They exist partly so that a country has financial resources available during periods of economic or currency stress.

According to the World Gold Council, central banks and other official institutions bought a net 288.9 tonnes of gold in the second quarter of 2026. That was a record for a second quarter. (5)

The comparison with the first quarter is striking.

First-quarter purchases were revised to 56.5 tonnes.

So:

\[288.9 \div 56.5 = 5.11\]

Central-bank net purchases in the second quarter were therefore just over five times the first-quarter level.

The year-on-year comparison is also substantial.

Central banks bought 177.9 tonnes in the second quarter of 2025 and 288.9 tonnes in the second quarter of 2026.

The percentage increase is:

\[\begin{aligned} \frac{288.9 - 177.9}{177.9} \times 100 &= \frac{111}{177.9} \times 100 \\ &= 62.4\%. \end{aligned}\]

The World Gold Council reports the increase as approximately 62% year on year. (5)

This is a large amount of physical gold.

The average London Bullion Market Association gold price during the second quarter was approximately \$4,506.29 per ounce. (6)

One metric tonne contains approximately 32,150.75 troy ounces.

An approximate value for 288.9 tonnes is therefore:

\[288.9 \times 32{,}150.75 \approx 9.29 \text{ million ounces}\]

Then:

\[9.29 \text{ million} \times \$4{,}506.29 \approx \$41.9 \text{ billion}\]

So the second quarter’s net central-bank demand represented roughly \$42 billion of gold at the quarter’s average price.

5. Who is buying?

The demand is not coming from one country.

The National Bank of Poland was the largest reported buyer during the second quarter, adding 51 tonnes and taking its reserves to about 632 tonnes.

The People’s Bank of China added 33 tonnes, bringing reported Chinese holdings to approximately 2,346 tonnes.

Uzbekistan added approximately 16 tonnes, while Kazakhstan added around 15 tonnes. Jordan and the Czech Republic were also notable buyers. (5)

This matters because it suggests that official-sector demand is reasonably broad rather than being dependent on one unusually aggressive buyer.

However, the trend is not perfectly smooth.

Central banks bought a net 345 tonnes during the first half of 2026, which was actually the lowest first-half total since 2022. The reason is that first-quarter buying was unusually weak before rebounding strongly during the second quarter. (5)

The correct conclusion is therefore not that central-bank buying rises every quarter.

It is that central banks have become a structurally important source of gold demand, even though the amount they purchase can vary substantially from quarter to quarter.

6. Why would a central bank own gold when bonds pay interest?

A private investor and a central bank do not necessarily have the same objective.

A private investor may primarily ask:

Which asset gives me the best return for the risk I am taking?

A central bank manages national reserves and therefore has additional considerations.

Gold can help diversify reserves away from a heavy dependence on one currency or one government’s bonds. Physical gold is also an asset that does not depend on a company, bank or foreign government making a future payment.

The World Gold Council’s 2026 research says reserve diversification, protection against geopolitical and financial-market uncertainty, and gold’s role as a long-term store of value remain prominent considerations for reserve managers. Its survey found that 89% of responding central banks expected global official gold reserves to increase over the following year, while a record 45% expected their own institution to increase its holdings. (5, 7)

This changes the way we should think about the effect of real yields.

A portfolio manager deciding between gold and TIPS may be highly sensitive to whether the real yield is 1.9% or 2.4%.

A central bank trying to diversify hundreds of billions of dollars of national reserves may place greater weight on diversification, liquidity, geopolitical resilience and the structure of its reserves.

That does not make central banks insensitive to price or interest rates. The World Gold Council itself notes that high gold prices and individual countries’ liquidity requirements can affect the timing and size of purchases. (5)

But their reasons for holding gold are broader than simply comparing its yield with the yield on a bond.

7. Central banks are not the whole market

Central-bank buying is important, but it should not be treated as the only explanation for gold’s strength.

Private investors remain significant.

World Gold Council data show that investors bought approximately 307 tonnes of gold bars and coins during the second quarter of 2026. (6)

Other parts of investment demand can move in the opposite direction. Gold exchange-traded funds experienced approximately 45 tonnes of net outflows during the same quarter.

An exchange-traded fund, or ETF, is an investment fund whose shares trade on a stock exchange. A gold ETF generally gives investors financial exposure to gold without requiring them to personally store physical bars.

This mixture of buying and selling tells us something important: there is no single group controlling gold’s price.

Recent price movements have also been affected by changing expectations for US monetary policy, the US dollar, inflation data and geopolitical uncertainty. Reuters reported that gold’s August rally accelerated as weaker US employment data and softer inflation readings reduced expectations for further Federal Reserve interest-rate increases. (8)

So the current gold market is better understood as the interaction of several forces rather than one simple relationship.

8. What current bank forecasts actually suggest

Several large financial institutions continue to expect gold prices to remain elevated, although their forecasts differ considerably.

Deutsche Bank maintained a \$4,600 per ounce fourth-quarter 2026 forecast in early August, while its valuation model produced a figure closer to \$4,700. (9)

State Street Global Advisors published three scenarios in June.

Its central, or base-case, scenario assigns a 70% probability to gold trading between \$4,750 and \$5,500 per ounce. A base case is simply the outcome an analyst considers most likely.

State Street also gives a 15% probability to a stronger bull case of \$5,500 to \$6,250 and a 15% probability to a weaker bear case of \$4,000 to \$4,750. “Bull” means a scenario involving higher prices; “bear” means a scenario involving weaker prices. (10)

UBS’s latest reported forecast, published on 7 August, expects gold to reach approximately \$5,000 per ounce during the first half of 2027. (11)

Using the 13 August spot price of \$4,386.69, we can put these numbers into perspective.

For Deutsche Bank’s \$4,600 forecast:

\[\frac{\$4{,}600 - \$4{,}386.69}{\$4{,}386.69} \times 100 = 4.9\%\]

For the bottom of State Street’s base case at \$4,750:

\[\frac{\$4{,}750 - \$4{,}386.69}{\$4{,}386.69} \times 100 = 8.3\%\]

For the top of the base case at \$5,500:

\[\frac{\$5{,}500 - \$4{,}386.69}{\$4{,}386.69} \times 100 = 25.4\%\]

For UBS’s \$5,000 forecast:

\[\frac{\$5{,}000 - \$4{,}386.69}{\$4{,}386.69} \times 100 = 14.0\%\]

These forecasts should not be interpreted as promises.

They are estimates based on assumptions about future interest rates, inflation, currencies, investor demand, central-bank purchases and economic conditions. If those assumptions change, the forecasts can change as well.

That is why understanding the mechanism behind gold is more useful than simply memorising a price target.

9. What investors should watch next

There are four separate indicators worth monitoring.

Real yields: If the 10-year TIPS yield continues rising, the opportunity cost of holding gold becomes greater. If real yields stabilise or fall, an important headwind for gold becomes weaker.
Central-bank demand: Quarterly World Gold Council data show whether official-sector buying remains unusually strong. Q2’s 289 tonnes should not automatically be assumed to repeat every quarter.
US monetary policy and inflation: Inflation influences expectations for Federal Reserve interest rates. Those expectations affect bond yields, the dollar and therefore gold.
Private investment demand: Bar-and-coin purchases and gold ETF flows show whether private investors are adding to or reducing their exposure.

No single number gives the complete answer.

The useful question is whether these forces are reinforcing one another or pulling in opposite directions.

10. The bigger change in the gold market

The traditional relationship between gold and real interest rates still makes economic sense.

Gold produces no income. When investors can earn a larger inflation-adjusted return from safe government bonds, the opportunity cost of owning gold rises. That remains a genuine headwind.

But a headwind is not the same thing as a rule determining the price.

Gold has risen roughly 31% over the 12 months to 13 August 2026 even though US 10-year real yields increased materially during 2026. (1, 2, 3)

The explanation is not that real interest rates suddenly became irrelevant.

It is that the gold market now contains powerful sources of demand capable of competing with the effect of higher real yields.

Central banks are especially important. Their Q2 purchases rebounded to 289 tonnes, more than five times Q1 levels and 62% higher than a year earlier. They are buying gold for reasons that include reserve diversification, geopolitical uncertainty and long-term wealth preservation rather than purely for current investment income. (5)

Private investors, monetary-policy expectations, the dollar and geopolitical conditions add further forces.

The practical lesson is therefore simple:

Do not analyse gold using real interest rates alone.

Real yields tell us how expensive it is to hold an asset that pays no income. Central-bank and investor demand tell us how much buyers are willing to pay despite that cost.

Understanding gold today requires watching both sides.

Data sources

Federal Reserve Bank of St. Louis and the Federal Reserve Board for US 10-year inflation-protected Treasury yields; Federal Reserve Bank of Chicago for research on the relationship between real rates and gold; World Gold Council for Q2 2026 gold demand and central-bank data; Reuters for current gold prices and UBS forecasts; State Street Global Advisors and Deutsche Bank reporting for institutional gold-price scenarios. Data are stated as of 13 August 2026 unless otherwise specified.