Spot gold fell sharply after the United States released a hotter-than-expected CPI report, last trading at $4,079.42 per ounce, down 1.96% on the day. Earlier, the 10-year US Treasury yield briefly climbed to 5.30%, and the 10-year Treasury Inflation-Protected Securities yield also approached 3%, but gold did not register a pronounced decline commensurate with the sharp rise in rates.

A senior official at a UK-based investment services firm said that although gold prices have pulled back since the Federal Reserve raised rates by 25 basis points in September, the overall decline has been limited. Based on past experience, gold typically faces significant pressure when both nominal and real rates rise together, but the current market response has clearly become more muted, suggesting that the correlation between gold and rates is weakening.

Fund flows point to a similar shift. In August and early September, even as long-end US Treasury yields continued to climb, investors increased their allocation to gold. Retail investors raised holdings through gold ETFs, while institutions expanded net long positions in futures markets. Such flows are usually sensitive to rate changes, but the recent rise in long-end yields has not triggered notable outflows.

At the same time, central bank purchases remain an important source of support for the gold market. The official noted that although the number of central banks continuing to add to their gold reserves this year has narrowed, this is largely related to gold's elevated price level and does not imply that central banks have abandoned their intent to accumulate gold. A latest survey by the World Gold Council found that a record 45% of central banks expect to increase their gold reserves over the next year, with the People's Bank of China potentially remaining one of the major buyers in 2026. This means that if gold prices experience a marked pullback, official demand could still provide strong support.

The firm said that much of the recent rise in US rates appears to be nearing completion, and from existing levels, downside risk for gold and the broader precious metals sector appears limited. If tensions in the Middle East ease and market expectations for further Fed tightening cool, pressure on gold prices may gradually subside. Most of the recent upside in US core inflation appears to have come from one-off factors, which also leaves room for the Fed to slow the pace of rate hikes after the Middle East situation improves.

The official also noted that if rate-hike expectations are further removed from the market, a genuine upside risk for gold could come from a potential revaluation by the US Treasury of its gold reserves. The US Treasury's gold holdings are estimated at slightly more than 8,000 tonnes. If revalued at current market prices, this would imply a depreciation of the dollar relative to gold and send a strong signal to the market, potentially reigniting the debasement trade that emerged in 2025.

In the short term, gold prices may remain within a relatively narrow range. Markets currently price in at least three 25-basis-point Fed rate hikes over the coming months, but this expectation may be on the high side. If yields continue to hover near recent highs and rate-hike expectations fade further, pressure on gold prices is expected to ease gradually, while central bank buying and a potential US Treasury gold revaluation will continue to influence precious metals pricing.