(Kitco News) - The gold market continues to face significant headwinds from persistent inflation, rising interest rates and higher bond yields; however, the precious metal has demonstrated remarkable resilience, ending the third quarter with solid gains even as U.S. Treasury yields climbed to multi-decade highs. According to one investment firm, these competing forces are expected to remain important drivers of gold prices through the final three months of the year.
In their latest quarterly outlook, market analysts at Invesco said that although higher bond yields could continue to weigh on gold prices in the fourth quarter, structural demand from central banks and renewed investor interest in gold-backed exchange-traded products (ETPs) should continue to provide long-term support.
The analysts noted that gold ended September at $4,157 an ounce, representing a gain of 3.7% during the third quarter. The positive performance came despite a sharp selloff in global bond markets that pushed longer-dated U.S. Treasury yields to their highest levels in more than two decades.
The analysts pointed out that 10-year Treasury yields ended September at 5.28%, while 30-year yields reached 5.63%, their highest closing levels since 2002.
The analysts explained that higher bond yields, particularly rising real yields, increase the opportunity cost of holding non-yielding assets such as gold. However, they noted that the historical relationship between gold and real interest rates has weakened considerably in recent years.
"The historical relationship between gold and real yields has been much weaker since 2022, when the freezing of Russian reserves pushed central banks to buy gold regardless of price," the analysts said.
Looking ahead, the analysts said that persistent inflation remains one of the most significant near-term risks for gold, particularly as economic growth continues to demonstrate resilience.
The report noted that the Federal Reserve raised interest rates by 25 basis points in September, bringing its target range to between 3.75% and 4.00%. The central bank's updated projections also signaled at least one additional rate hike before the end of the year.
However, Invesco said that weaker-than-expected personal consumption expenditures inflation data at the end of September reduced expectations for an October rate hike. Currently, according to the CME FedWatch Tool, markets see only a 21% chance of a rate hike later this month.
The Federal Reserve is expected to leave interest rates unchanged at its October meeting as policymakers wait for additional economic data before considering another increase in December.
Analysts have said that persistent inflation will force the Federal Reserve to maintain its tightening bias; meanwhile, Invesco noted that stronger economic growth is increasingly contributing to higher bond yields, adding another challenge for gold investors.
The analysts also pointed to growing concerns about U.S. government borrowing, with national debt surpassing $40 trillion during the third quarter. They suggested that investors may increasingly demand additional compensation for holding longer-dated government debt as fiscal risks mount, pushing bond yields even higher.
Despite these challenges, Invesco said that gold's underlying investment fundamentals remain intact, supported by renewed interest in gold-backed investment products.
According to the report, global holdings in physically backed gold ETPs declined through much of 2026 as elevated gold prices and strong equity markets reduced the precious metal's appeal in diversified portfolios.
However, that trend reversed sharply during the third quarter, with global holdings ending September at their highest level in 12 months.
The analysts also expect central bank demand to remain an important source of support through the fourth quarter, particularly as reserve managers increasingly focus on geopolitical risks and the security of their gold holdings.
Invesco noted that central banks purchased more gold during the second quarter of 2026 than in any second quarter on record, quoting data from the World Gold Council.
While the firm maintains a constructive long-term outlook, it warned that investors should prepare for continued volatility in the fourth quarter.
"If financial markets remain volatile, we wouldn’t be surprised to see volatility in the gold price, possibly even regardless of the outlook," the analysts said.
They explained that during periods of significant financial market stress, investors can be forced to liquidate gold holdings to meet margin calls or cover losses elsewhere in their portfolios, even when their longer-term views on the precious metal remain unchanged.
This risk could be particularly relevant for investors whose gold positions have appreciated significantly in recent years.
Nevertheless, Invesco expects central bank diversification, geopolitical uncertainty and renewed investment demand to continue supporting the precious metal, even as elevated interest rates and bond yields create challenges in the near term.
"That said, we think structural support for gold remains in place. We believe central banks will continue buying gold to diversify their reserves," the analysts said.
See live precious metals prices for gold, silver, platinum and palladium — in USD, CAD and 12 more currencies.
