(Kitco News) - After a solid recovery in August, the gold market is ending the third quarter on a disappointing note as a sharp rise in bond yields takes its toll on the non-yielding asset.
Persistent inflation pressures, falling bond prices and tighter global monetary policies have eaten away at gold’s gains; however, according to one market strategist, despite the headwinds, gold’s downside could be limited through the final quarter of 2026.
Gold prices are looking to end the third quarter with a 4% gain as prices manage to hold critical support above $4,100, but they are down from last month’s highs just below $4,700 an ounce. The selling pressure on gold comes as 10-year bond yields have risen 87 basis points to 5.27%, their highest level in roughly 20 years.
Despite the current risks in the market, Fawad Razaqzada, Market Analyst at FOREX.com, said that he sees potential for gold prices to recover by year-end.
“Gold spent much of the Q3 bouncing around $4,000 and $4,500, as volatility compressed with investors not sure whether to buy the dip as fiat currencies continues to lose value to inflation, or sell the metal short against a backdrop of rising US dollar and rising bond yields, mostly negative traditional macro factors,” he said. “Surging bond yields had no doubt increased the opportunity cost of holding the zero-yielding gold, but clearly not enough to trigger a sharper sell-off. Given gold’s ability to remain steady in what should otherwise have been a tough macro environment, the precious metal could have a shinier Q4. We are thus cautiously optimistic on the gold outlook for the remainder of the year. A potential deal to re-open the Strait of Hormuz could see central banks delay or pause rate hikes and that, in turn, could see the metal thrive.”
In the current environment, Razaqzada said that gold’s dominant driver remains U.S. monetary policy. Markets continue to price in at least one more rate hike before the end of the year. However, Razaqzada said that the question remains whether the Federal Reserve will be able to get inflation under control.
“If investors lose faith in the Fed and its ability to control inflation or yields, then the dollar debasement trade could resurface and that could be positive for gold, silver and bitcoin, as well as currencies of countries with better fiscal discipline than the US,” he said.
Looking beyond interest rates and bond yields, Razaqzada said that gold should continue to find solid support as central bank demand is expected to remain strong through the fourth quarter.
“It is likely that purchases continued for the rest of Q3 and given the troubles in the bond markets, we wouldn’t rule out further diversification into gold by major central banks in the remainder of the year, and a move away from US Treasurys. This should keep gold supported, all else being equal,” he said. “There are no major indications that demand for gold from central banks will ease in the final quarter of the year. If purchasing continues, we could see gold prices push higher as investors and speculators try to front-run central banks by increasing purchases via ETFs, spot and futures. It is likely that additional central bank buying will also offset any negatives such as further strength in US dollar or yields.” (Kitco Global Index shows how much of today's gold move is the dollar versus the gold market itself.)
Looking at the technicals, Razaqzada said that while gold faces near-term headwinds, there is no doubt that the market remains in a long-term bullish uptrend.
“We saw gold stage a sharp rally away from the key $4,000 level, making this an important long-term support area. Since that rally in early August, gold has spent several weeks declining inside what appears to be a descending triangle pattern. This is a bullish continuation formation and a potential break above the resistance trend of it is required to validate the pattern, and potentially trigger follow-up technical buying above it,” he said. “The resistance trend of the triangle pattern comes in around the $4,400 area, making it a pivotal level to watch in Q4. A break above there could see the metal head to $4,500 initially, ahead of $4,700 area next – the latter coming in just above the August peak of $4,696. If there is acceptance above that level, then $5,000 is the next obvious target from a bullish point of view.”
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