The Tug of War in Gold

I am getting a lot of calls the past few days asking what the hell is going on with the gold price. To understand the gold market right now, you only need to see the two forces pulling in opposite directions. On one side sits a structural floor that did not exist for most of my career in this business. On the other sits a familiar set of short-term pressures driven by U.S. yields and the dollar. The first is new. The second is temporary. That distinction matters more than the day-to-day noise.

The floor comes from the world’s central banks, led by China. For years these buyers have pursued a consistent accumulation strategy that shows little sensitivity to price. This is not a speculative trade. It is a long-term structural shift we have not seen in our lifetimes. China has been adding gold month after month; official holdings now stand near 2,435 tonnes, essentially level with France. What they truly own is subject to speculation, but in my opinion, could be multiples of that. The World Gold Council reported that central banks and other official institutions bought a net 321 tonnes in the third quarter of 2026, the fastest pace since 2024 and a 42 percent increase from the year before. Year-to-date purchases reached roughly 675 tonnes. Poland has been another large, steady buyer. These institutions treat gold as a tier-one reserve asset with no counterparty risk, a neutral settlement tool in a world that is gradually reducing reliance on the dollar. When they sell Treasuries, they need something to replace them. Gold is the only asset that fits. It’s the go-to asset.

There are exceptions. Russia and Turkey have sold at times for liquidity reasons. Russia has been the clearest seller, disposing of roughly 19 tonnes in the third quarter and more than 50 tonnes year-to-date as wartime spending, budget deficits, and an inability to access its frozen U.S. dollar reserves force it to draw on the National Wealth Fund. Its holdings have fallen to about 2,264 tonnes. As the world’s second-largest gold producer, these reserves can be easily replaced. Turkey sold heavily earlier in the year, tens of tonnes in the first half, when higher energy costs linked to regional conflict required dollars to settle oil imports and support the lira. These are tactical, finite liquidations. They do not reverse the multi-year trend of official-sector accumulation. Once the immediate cash needs ease, the structural buyers reassert themselves.

What has been weighing on the price in the near term is straightforward. The 10-year Treasury yield has pushed toward 5 percent. That strengthens the dollar, and gold, priced in dollars, comes under pressure. The inverse relationship is not new; it is simply reasserting itself while rates stay elevated and the dollar index holds above 100. Speculative and leveraged positions feel this immediately. Physical central-bank demand does not.

Why is this pressure short-term? Higher rates for longer are not sustainable for two arithmetic reasons.

First is the U.S. debt pile. Gross national debt stands above $40 trillion and has been growing by roughly $2–2.5 trillion a year. In fiscal 2026 the government paid roughly $1.05 trillion in net interest (about $1.36 trillion gross), an average rate near 3.4–3.6 percent. Interest already consumes a rising share of federal revenue and has surpassed defense spending. If the average cost on that debt rises toward 5 percent as maturing low-rate paper is refinanced, the interest bill expands by hundreds of billions of dollars annually. A deficit that is already large moves toward $3 trillion. At that point the math forces a choice: cut spending deeply, raise taxes sharply, or inflate and let the currency take the hit. History suggests the last option is the path of least resistance.

Second is the private sector. U.S. household debt has reached a record $19.1 trillion. Mortgages alone are about $13.4 trillion; auto loans sit near $1.73 trillion; credit-card balances are around $1.29 trillion. These levels cannot be serviced indefinitely at current rates without rising delinquencies and slower spending. The economy is not structured to tolerate a prolonged period of high real rates when so much private debt is outstanding.

The Federal Reserve is therefore in an impossible position. It cannot fight residual inflation the old-fashioned way, by holding rates high or raising them further, without risking both government financing and private-sector balance sheets. At some point the costs of “higher for longer” exceed the costs of allowing inflation to run hotter. That is the game of chicken. Gold investors are, in effect, betting on the timing of the Fed’s fold. I am betting they fold. The only open question is how long it takes and what event or manufactured excuse the Fed needs. It may, inadvertently, cause a recession which in turn would provide the excuse to lower rates.

In the meantime, gold can remain weak. Speculators who entered for momentum may eventually throw in the towel, producing further selling and lower prices. That is normal in a market still dominated in the short run by paper flows and rate expectations. Physical long-term holders can afford to ignore it. The structural bid from central banks has not disappeared. The debt math has not improved. The private-sector interest burden has not eased. Fed chair Kevin Warsh does not have the luxury that Paul Volcker had in the early 1980s. There is simply too much debt to play tough guy with the economy. When the Fed eventually prioritizes system stability over inflation, the dollar will weaken and real rates will fall. Gold has always responded to that combination.

I have held physical gold since 2001 without selling. Additionally, I own a large portfolio of gold miners, junior and senior. I have been around long enough to know when not to panic. The thesis has not changed: debase the currency and the metal rises. It is arithmetic, not theory. Short-term volatility will continue. Speculators and gold-mining equities will feel pain while the tug-of-war plays out. Long-term holders who treat gold as a store of generational wealth rather than a trade can sit through it. The floor is still there. As for the short-term speculators, very sorry, I can’t offer any comforting words.