A war and an oil shock, yet gold is a quarter below its peak. Why?

What happened

Gold traded at about $4,008 an ounce on the morning of 27 October in Singapore, little changed after a 0.5% gain the day before. On 23 October it touched its lowest level since mid-July, according to Bloomberg.

That is a long way from its peak. Gold set a record above $5,300 at the end of January, so it is now roughly a quarter lower, even though a war in the Middle East has pushed oil above $110 and shaken markets.

Traders are waiting for the Federal Reserve’s decision on 28 October. Markets give only about a 10% chance of a rate rise this week, but around 80% for one by December, after the Fed raised rates in September for the first time since 2023.

Why higher rates weigh on gold

Gold pays no interest. Holding it means giving up what you could earn on a bond or a bank deposit instead. When interest rates are low, that cost is small. When they rise, it grows.

What matters most is the real interest rate, the return after inflation. The oil shock has pushed inflation up, which on its own would help gold. But markets expect the Fed to respond with higher rates, and the US 10-year Treasury yield is around 5%, close to this month’s peak, its highest since 2002. A safe bond that pays 5% competes directly with a metal that pays nothing.

Why a safe haven can fall in a sell-off

When technology shares fell sharply on 15 and 22 October, investors facing losses needed cash quickly. Gold is easy to sell and had risen a lot over the past few years, so it was one of the first things sold. Bloomberg reported that this selling to cover losses added to the pressure.

This is a known pattern. In the first days of a crash, investors sell almost everything to raise cash, including safe assets. Gold often recovers once the forced selling stops, but not always, and not if rates keep rising.

Where it sits in the chain

This is Link 3, expected interest rates. The oil shock lifts inflation, markets expect the Fed to raise rates, and those expectations ripple into every asset that pays no income, gold first among them. The usual safe-haven pull is still there, but for now the pull of higher rates is stronger.

What to watch

• The Fed’s decision and press conference on 28 October, and any hint about December.
• US 10-year yields: a sustained fall would ease the pressure on gold.
• Whether gold holds above about $3,890, a level Standard Chartered analysts flagged as important support.