Macroeconomic Drivers
The US dollar, real interest rates, and inflation expectations form the macro trinity that most directly influences gold prices.
- Dollar Strength (DXY) – Inverse correlation — a weaker dollar generally means higher gold prices, since gold becomes cheaper for foreign buyers
- Real Interest Rates – Negative real rates (inflation exceeds interest rates) are bullish for gold; positive real rates increase the opportunity cost of holding a non-yielding asset
- Inflation Expectations – Gold tends to perform best during periods of rising and accelerating inflation, particularly when central banks are perceived to be behind the curve
- Fed Policy – Rate cuts and quantitative easing are tailwinds; rate hikes and quantitative tightening are headwinds
Structural Drivers
Central bank buying, supply constraints, and geopolitical events provide the structural backdrop for gold pricing.
- Central bank buying — Since 2022, central banks have added over 1,000 tonnes/year, led by China, India, Turkey, and Poland, as part of de-dollarization strategies
- Gold supply — Annual mine production (~3,600 tonnes) is relatively inelastic. New discoveries take 10-20 years to bring to production
- Jewelry demand — Accounts for ~40-50% of annual demand, driven primarily by India and China
- Investment demand — ETF flows, bars, and coins represent ~25-30% of demand and are the most volatile component
- Geopolitical events — Wars, sanctions, and crises drive safe-haven flows, often creating sudden price spikes and a price floor