Reasons for the Decline in Gold Prices: Rising US Real Interest Rates

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丹湖渔翁2026/07/09 09:51

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By:丹湖渔翁

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My new book, "Crossing the Natural Interest Rate Trap," has been published. For a brief introduction see,. The color illustrations from the book are available at.It is recommended to purchase the official edition on Tmall and JD.com.

Let’s talk about the recent gold price.

I. No longer bullish on gold in the long term, now turn neutral/cautious towards gold prices for the long term

In September 2025, I once said that I was bullish on gold in the long term, based on the logic of the decline of dollar hegemony (click). On January 30, 2026, in the early hours, I felt the gold price had risen too quickly in the short term and started to turn bearish (just at the peak), but remained long-term bullish (click), so the logic did not change. Even on March 20, I was still expecting gold to fall in the short term and believed it would rebound in the long run (click).

But now my view has changed. I believe the AI revolution will cause the US natural interest rate to rise relative to the Eurozone, UK, Japan, and others, resulting in the dollar maintaining its strength. This is negative for gold prices. For detailed analysis, see From the perspective of Natural Interest Rate Parity, the Dollar Index is expected to remain strong in the long run.

II. Reasons for the recent gold price decline

Previously, in March, during the height of the Iran-US war, when crude oil prices rose, gold prices actually dropped. At the time, I explained that this was because investors, due to liquidity needs, were selling gold (see 1, 2) .

Now that the US and Iran have already signed a "Memorandum of Understanding", the conflict has ended, crude oil prices have quickly fallen from over $90/barrel to over $70/barrel, yet gold and silver prices continue to fall. This week, London gold spot fell below $4,000/ounce and silver dropped to $56/ounce. Why is that?

The reason is actually simple: the real interest rate implied by the nominal yield of US Treasuries has risen.

Figure 1 shows the price of Brent Crude and US inflation expectations. Since May, because crude oil prices (red line) have fallen, US inflation expectations have followed lower.

Reasons for the Decline in Gold Prices: Rising US Real Interest Rates image 0

Figure 1 Brent Crude Price and US Inflation Expectations

Figure 2 shows that when inflation expectations (red line) fall, the nominal yield on US Treasuries (green line) did not fall synchronously. This is because many on Wall Street expect rate hikes. I’ve previously analyzed (1, 2) and said these people were talking nonsense. After the Fed released the FOMC Statement regarding the policy meeting in the early morning of June 18, markets again expected rate hikes in the second half of the year (click). These expectations kept US Treasury yields high. It wasn’t until this week that they finally dropped significantly.

Reasons for the Decline in Gold Prices: Rising US Real Interest Rates image 1

Figure 2 Falling Inflation Expectations, Rising Real Interest Rates
Nominal yields fell slowly, inflation expectations fell quickly, so the real interest rates implied in nominal yields (the blue line in Figure 3) rose. Gold prices move in the opposite direction of real interest rates. As a result, gold prices fell.

Reasons for the Decline in Gold Prices: Rising US Real Interest Rates image 2

Figure 3 Gold Prices vs. Real Interest Rates

As seen from Figure 3, gold prices and real interest rates are perfectly negatively correlated. This has been the case for the past six months (as shown in Figure 4), that is, gold investors have always acted according to the same logic—it has not changed.

Reasons for the Decline in Gold Prices: Rising US Real Interest Rates image 3

Figure 4 Gold Prices vs. Real Interest Rates

When can gold prices stop falling? Real interest rates have to stop rising. For example, if Wall Street no longer expects a rate hike, or instead anticipates a rate cut, causing US Treasury nominal yields and real interest rates to fall, then gold prices will rebound.

But in the long run, if the AI revolution drives strong US economic growth, the natural interest rate will inevitably rise, driving actual rates higher, which is bearish for gold.

III. Gold mining stocks

Finally, a quick note: the gold price and the price of gold mining stocks are two completely different things. The former is driven by the price, while the latter is essentially driven by profits.

Only when gold prices are rising sustainably and strongly will gold mining stocks rise. As long as gold prices are consolidating or adjusting, gold stocks will fall.

From January 30 to today, the gold mining stock index dropped 48% (during which gold prices fell 29.5%), returning to the level on September 1, 2025 (see Figure 5), at which time gold prices were only $3,400/ounce.

So, for most people, it's best to stay away from gold mining stocks. The lesson is hard-learned and costly.

Reasons for the Decline in Gold Prices: Rising US Real Interest Rates image 4

Figure 5 Gold Mining 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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