What Moves the Gold Price: Real Yields, the Dollar, Central Banks and Flows

An asset that pays nothing

Gold has no coupon, no dividend and no earnings. Its price is whatever the marginal buyer will pay to hold a store of value that no government issues, and the drivers of that price are the things that change the cost of holding it and the demand for what it offers. They can be ranked.

Real yields

The first cost of holding gold is the return given up on the alternative. The alternative to a bar of gold is a government bond, and the return that matters is the real one, the yield above inflation, because gold's appeal is precisely that it is not eroded by inflation. The ten-year Treasury inflation-protected yield is the standard measure. When real yields rise, gold becomes more expensive to hold relative to a bond that now pays a positive return above inflation, and the price tends to fall; when real yields fall or go negative, gold tends to rise.

For most of the two decades to 2022 the inverse relation was close enough to trade. It loosened after that: gold rose through 2023 and 2024 while real yields sat near their highest in fifteen years, because another buyer had arrived.

Central banks

Central banks have been net buyers of gold since 2010 and bought more than a thousand tonnes in each of 2022 and 2023, roughly a quarter of annual demand and about double their average of the previous decade, led by China, Poland, Turkey, India and Singapore. The purchases followed the freezing of Russia's foreign reserves in 2022, after which gold's attraction as a reserve asset that cannot be sanctioned grew for countries outside the western alliance. Central bank buying is price-insensitive and steady, which is why it was able to offset the pressure from real yields.

The dollar

Gold is priced in dollars, so a stronger dollar makes it dearer in every other currency and pushes the dollar price down, and the reverse. The relation is reliable but not large on its own: gold measured in euros, yen or rupees tells a different story from gold in dollars, and in a year when the dollar is strong gold can be flat in dollars and at records in everything else.

Investment flows and positioning

Western investment demand shows up in the holdings of gold-backed exchange-traded funds, which are reported daily and tend to follow real yields with a lag. Speculative positioning shows up in the weekly Commitments of Traders report, where the net long position of managed money in gold futures measures how crowded the trade has become. A large net long is a tailwind that has already been spent; it is at those points that a change in real yields has its sharpest effect.

Inflation, risk and the rest

Gold is held as an inflation hedge, but it responds to expected inflation and to the policy response more than to the inflation print itself: inflation that is being met with rate rises is bad for gold, because it raises real yields; inflation the central bank is tolerating is good for it. Gold rises in a crisis when real yields fall and the demand for an asset with no counterparty rises together; in a liquidity crisis, such as March 2020, it can fall first as it is sold to raise cash. Physical demand, jewellery in India and China above all, supports the price on dips and follows a seasonal pattern around the Indian wedding season and the Chinese New Year, but it rarely leads. Mine supply, at about 3,600 tonnes a year, changes too slowly to matter in any one year.

How the price is set

The spot price, quoted as XAU/USD, is the price of a troy ounce (31.1035 grams) for immediate delivery in the London over-the-counter market. The LBMA Gold Price is set twice a day by auction, at 10:30 and 15:00 London time, and is the reference for most contracts. The futures price is the COMEX contract in New York, 100 troy ounces per contract, and most of the day's price discovery happens there during the American session, with the heaviest trading in the hours when London and New York overlap.

On the desk

The gold notebook is the desk's main instrument. Every release and market check that bears on gold, from the real yield and the dollar to the central bank calendar and positioning, carries a weight, and the read is their signed sum, re-scored every minute as the tape moves, with a verdict, a strength gauge and the day's notes.