What Moves Gold: The Forces Behind the Price and How the Market Reacted

Gold has gone from a breakout above US$4,000 to a record near US$5,600 and back to about US$4,200 in just over a year, and no single factor explains the whole ride.

The World Gold Council dates the first leg to 8 October 2025, when gold passed US$4,000 an ounce after climbing from US$3,500 in 36 days. Western investment demand, a weaker dollar, expected Fed rate cuts, geopolitical tension and steady central bank buying all pushed in the same direction. The rally then ran into January 2026, when spot gold touched a record of US$5,595.47 on 29 January, according to the Council's mid-year outlook.

The reversal was sudden. On 30 January the president nominated Kevin Warsh to chair the Federal Reserve. Markets read the pick as less threatening to the Fed's independence, the dollar jumped, and a bullion dealer's monthly recap reports spot gold fell 9% in a day, its largest one-day drop since 1983. By late June the London afternoon price had slid to US$4,001.80, about 25% below the record. In mid-October, gold is trading near US$4,200.

The sections below take each force in turn: what it is, how gold responded, and where the evidence is thinner than the headlines suggest.

Central banks: steady buyers who treat dips as entry points

Central banks bought a record 288.9 tonnes of gold in the second quarter of 2026, up 62% from 177.9 tonnes a year earlier, according to the World Gold Council. That was a fivefold jump from a revised 57 tonnes in the first quarter, and it came as prices were softer, not stronger.

The buying was concentrated:

• Poland added 51 tonnes and reached 632 tonnes, closing in on its stated 700-tonne target.
• China added 33 tonnes, its largest quarterly purchase since the fourth quarter of 2023, taking reported holdings to 2,346 tonnes.
• Uzbekistan and Kazakhstan added 16 and 15 tonnes.
• Russia was the largest seller, down 22 tonnes, and Turkey sold a modest 4 tonnes while shrinking its gold swaps.

First-half purchases totalled 345 tonnes, the weakest first half since 2022, because Turkey, Russia and Azerbaijan sold in the first quarter. The Council still calls demand "broad-based", and 89% of central banks in its reserves survey expect global reserves to rise over the next year, with a record 45% planning to add to their own.

Interest rates, yields and the dollar: the pull that is working right now

Gold pays no interest, so when yields rise or the dollar strengthens, holding it costs more and gold usually falls. The World Gold Council puts a number on it: a 25-basis-point drop in the US 10-year yield has historically been worth about +1.75% for gold, per its mid-year outlook.

This month the effect is easy to see. After a hot September inflation print, one market commentary reports that rate-hike expectations rose, yields and the dollar firmed, and spot gold slipped to about US$4,086 to US$4,093 on 14 October. It summed it up as "Gold is trading on rate expectations, not inflation fear." By 16 October, easing Treasury yields and a softer dollar index had pushed gold back above US$4,200, Yahoo Finance reports. It also cites CME FedWatch pricing of about an 85% chance the Fed holds rates at its 28 October meeting.

The pattern shows in the demand data too. The Council says ETF holders sold 45 tonnes in the second quarter, driven by weaker prices and, in North America, higher inflation and rate expectations and a stronger dollar (Q2 2026 Gold Demand Trends).

There is a limit on how much rates explain. The Council's attribution model gives rates only about 3% of gold's price variability in the first half of 2026 and currency effects about 14%, well behind momentum (24%) and risk and uncertainty (17%).

Inflation, tariffs and trust in the Fed: why "hedge" does not always mean "up"

Gold is the classic inflation hedge, but 2026 shows the hedge only works when central banks look willing to let inflation run. The Council estimates a 1% rise in CPI is worth about +0.5% for gold, a small effect next to the others. When September's inflation data came in hot, the one-day reaction was a fall, because markets priced higher rates instead (market commentary; headline CPI 3.7% and core 2.6% are that source's figures, which we have not checked against official data).

Trust in the Fed's independence matters more than the inflation number. The Council lists concerns about it in early January as one reason gold climbed to its record, and the Warsh nomination on 30 January, read as reassurance, was the trigger for the sell-off described above.

Trade policy was the earlier story. In February 2025, as the US raised steel and aluminum tariffs and gold set a record near US$2,943, analysts quoted by Kitco described safe-haven demand shifting from Middle East tensions to "the threat and realisation of tariffs." Fear that tariffs could disrupt US gold supply pushed US futures more than US$60 an ounce above London spot, drew metal into COMEX warehouses, and tightened London lending. The gap narrowed to about US$28 within weeks. Some analysts that month already argued the rally had left gold overbought and exposed to a pullback.

We did not find a source that cleanly separates the tariff effect from the other drivers over the longer run, so treat tariffs as one input in 2025 rather than a measured share of the move.

Geopolitics: a real but uneven safe-haven bid

The Council's attribution model gives risk and uncertainty about 17% of gold's first-half 2026 price variability, second only to momentum. Its estimate is that a 100-point monthly rise in a geopolitical risk index adds roughly 2.5% to gold. The mid-year outlook ties the first-half risk premium to the US-Iran conflict and heavy options activity.

The response is not one-directional. Energy shocks from the same conflicts push inflation up, which can raise rate expectations and pull gold down, so the safe-haven bid and the rates drag fight each other. One market commentary reports Brent near US$106 amid tanker attacks in the Strait of Hormuz and argues that oil direction and Fed direction have become close to one variable for gold. That is the commentary's reading, not a measured result. Yahoo Finance likewise points to two global conflicts affecting energy prices and clouding the Fed's outlook.

The lesson from the past year is that conflict lifts gold when it also lowers rate expectations or weakens the dollar, and fails to when it does the opposite.

Investor flows and momentum: the accelerant

Momentum is the largest single contributor in the Council's first-half 2026 model, at about 24% of price variability, which captures trend-following, positioning and profit-taking rather than any news event.

The rally's investor side was visible in 2025. The Council reported in October that gold ETFs had added US$21 billion since late August and US$67 billion for the year, lifting holdings to 3,857 tonnes, about 2% below the November 2020 peak (Gold hits US$4,000). It also warned that signals were overbought, with the relative strength index above 90 and price more than 20% over its 200-day average.

The unwind has been orderly in volume terms and violent in price terms. Realised volatility rose above 50% during the sell-off, then eased below 30%, still above the 20-year average of 17%. In the second quarter ETFs saw outflows of 45 tonnes, while bar and coin demand held steady at 307 tonnes, a return to normal after two very strong quarters (Q2 2026 Gold Demand Trends).

History is a useful guide to size. Since 1971 the Council counts eight drawdowns of more than 20% from a record high, averaging 36% with a median of 29%. The current fall from the January peak, about 25% at the June low, sits inside that range.

Jewellery, supply and recycling: the brake and the safety valve

High prices cut physical demand and bring old gold to market, which is why the physical side acts as a brake on rallies. In the second quarter of 2026 the Council measured jewellery demand at 278 tonnes, the lowest quarterly volume since the pandemic, even as spending on jewellery rose 14% to US$40 billion (Q2 2026 Gold Demand Trends). Consumers bought less gold for more money.

India is a specific pressure point. The Council's mid-year outlook says an import duty increase from 6% to 15%, along with other measures, is expected to cut Indian jewellery, bar and coin demand by 50 to 60 tonnes, about 10% year on year.

Supply barely moved. Total supply was steady at 1,269 tonnes in the quarter, mine production rose 2%, and recycling fell 6%, because lower prices discouraged people from selling old jewellery. Averaged over the quarter the London afternoon price was US$4,506.29, 8% below the first-quarter record average but 37% above a year earlier.

Total demand ended up flat at 1,269 tonnes, and first-half demand rose 2% to 2,522 tonnes. Measured in dollars, first-half demand was a record US$380 billion.

The Canadian angle: gold is priced in US dollars, paid in Canadian ones

Gold trades globally in US dollars, so the price a Canadian sees is the US price multiplied by the USD/CAD exchange rate. On 16 October that rate was 1.4161 (Frankfurter), which puts gold near US$4,200 at roughly C$5,950 an ounce. Each one-cent move in USD/CAD shifts that price by about C$42 with no change in the US price.

That makes the dollar a second force on top of everything above. A rising USD/CAD cushions Canadian holders when the US price falls, and a falling one amplifies the loss. It also means the same news can look different on a Canadian screen than on a New York one.

Two practical Canadian points, both from a secondary tax summary that you should confirm with the CRA before relying on:

• GST/HST: bullion can be exempt when gold is at least 99.5% pure and silver at least 99.9% pure, in the form of a bar, ingot, coin or wafer. Jewellery and collector coins are not exempt.
• Capital gains: selling bullion is a taxable event for individuals, reported on Schedule 3 of the T1. Dealers generally do not issue a tax slip, so sellers must track their own cost base, including premiums and shipping.

The spot price is a reference, not what a dealer pays or charges. Buy and sell spreads, premiums and fees decide what a Canadian actually receives, and they vary widely between dealers.

What to take from it

Gold's last year says that no single driver is reliable; the mix and the timing are what move the price.

• Rates and the dollar set the short-term direction. Yields and the dollar explain most day-to-day moves, even when they contradict the inflation or safe-haven story.
• Central banks set the floor. Record second-quarter buying arrived as prices fell, which is the behaviour of buyers with long horizons.
• Momentum sets the size of the swings. A market that gained 13% in January and lost 9% in a day is trading positioning, not just fundamentals.
• Physical demand is the brake. Jewellery volumes fell to a post-pandemic low at these prices, and recycling dried up when prices fell.
• For Canadians, the exchange rate is part of the price.

None of this predicts where gold goes next. The Council's own base case for the second half of 2026 is a range of about 5% either side of US$4,100, with US$4,500 or higher if risks return and a risk of a further leg down below roughly US$3,860.