Gold: why we sit at neutral, and what would move us

The rally did not last. From an intraday high of about USD 4,607 on 25 August, gold fell 10.4% to around USD 4,130 by 28 September. The Fed's first rate hike since 2023, a firmer US dollar and higher Treasury yields did most of the damage. As of early October, gold trades around USD 4,150, still well below its January record of USD 5,405.

In our previous updates, we argued that structural drivers did not justify more than a small diversifier position. That conclusion stands. This piece sets out the balance of forces behind our neutral view, and the specific market signals that would make us more positive or more negative from here.

Related article: Gold rallies to around USD 4,400, but the case against it hasn't moved

Related article: We warned about gold since late 2025. It is now down 29% from its January 2026 peak.

What frames our neutral view

Rates are set to stay higher for longer. On 16 September, the FOMC voted 12-0 to raise the Fed funds target range by 25bps to 3.75% to 4.00%, its first hike since 2023. The median dot now points to another 25bps hike in 2026, and Chair Warsh said the Fed needs to be confident that inflation is moving clearly back to target, and that this standard had not been met. We expect inflationary pressures to persist, which keeps the Fed on hold or hiking rather than cutting.

That matters for gold because it generates no earnings, dividends or cash flows. When USD cash and money market funds pay close to the Fed funds rate, the opportunity cost of holding a zero-yield asset stays high. Persistent inflation is not automatically good for gold if the central bank responds by keeping real yields elevated.

The US dollar has near-term support. A hiking Fed widens the dollar's yield advantage, and gold has tracked the dollar closely in recent weeks. In late September, correlation between gold and the DXY (USD) reached -0.92. Looking across calendar years, gold and the US dollar have also tended to exhibit a long-term inverse relationship. As long as US rates stay ahead of peers, a stronger dollar is a headwind for dollar-priced gold.

Figure 1: Correlation between USD and Gold prices

Over the long run, however, the US dollar faces structural pressures. US federal debt crossed USD 40 trillion in August, raising questions about fiscal sustainability. Moreover, the Treasury’s expanded bond buyback programme has revived fears of dollar debasement. Central banks are also gradually diversifying their reserves away from the dollar. The dollar’s share in global foreign reserves has fallen to 56.7% in 2Q26, which is lower than its ten-year average of around 60%. Collectively, these pressures support gold’s long-term case and are why we stop short of a negative view, but we see them as slow-moving rather than near-term catalysts.

Figure 2: USD’s share in official foreign reserves globally

Central banks are a steady buyer. Geopolitical tensions, including the unresolved US-Iran conflict around the Strait of Hormuz, have kept reserve managers diversifying into gold. Central banks reported net purchases of 23 tonnes in July, taking year-to-date (YTD) buying to around 130 tonnes. China's central bank added 23 tonnes in September, its 23rd straight month of buying and its largest monthly purchase since September 2023. Poland leads all buyers this year with 90 tonnes as of end-July, and the Bank of Korea has made its first gold investment in 13 years.

The overall buying pace of central banks is softer than last year, though. The 130 tonnes bought by end-July compares with roughly 160 tonnes over the same period in 2025, and Russia and Turkey remain net sellers. Central bank demand provides a floor of support, not a reason to chase prices higher.

Weighing these forces, rates and the dollar argue against adding gold, while central bank demand and long-run fiscal concerns argue against cutting it. Overall, we hold a neutral stance at this juncture.

What we need to see before turning more positive

The biggest catalyst is a durable decline in interest rates. Because gold is non-yielding, its appeal rises when opportunity costs shrink. Today that trade-off still favours money market funds.

We would need to see the following before upgrading our view:

• A Fed pivot towards cuts. Not just a pause in hikes, but a credible signal, through the statement, the dot plot or a run of soft inflation prints, that the next move is down.
• Falling real yields. A sustained decline in inflation-adjusted Treasury yields lowers the opportunity cost of holding gold more directly than any single rate decision.
• A weaker US dollar. Narrowing rate differentials that pull the dollar lower would remove one of the strongest near-term headwinds, given gold's meaningful inverse relationship with the DXY, which has tightened sharply in recent weeks.

Where we stand on rates

In our house view, these triggers are still some way off. At its September meeting, the Fed pencilled in one more hike this year and removed the rate cuts it had previously expected for 2027, with the median official now seeing rates end both years around 4.1%. We think the risks lean towards rates staying high rather than falling. Core PCE inflation, the measure the Fed targets, has held at 3.3% for three months, and the jump in oil and diesel prices has yet to fully feed through into freight and wider consumer prices. Meanwhile, the 10-year Treasury Inflation-Protected Securities (TIPS) yield has climbed above 2.8% for the first time since the 2008 Global Financial Crisis in late September, keeping the opportunity cost of holding gold high. The first signs we would look for are cooling monthly inflation prints and easing energy prices, which would allow the Fed to move from hiking to holding, and eventually to cutting. Until then, we expect to remain neutral, and we would not treat gold's recent pullback as a reason to go beyond our 0% to 10% allocation.

Related article: September FOMC Recap: The Fed hikes for the first time since 2023 – What should you do now?

Two developments could reinforce a more positive call, though neither would be enough on its own.

• The first is central bank buying rising back above last year's pace, broadening beyond China and Poland.
• The second is markets losing confidence in US fiscal policy, for example if Treasury intervention to cap yields is seen as financial repression rather than a credible fix. WGC analysis suggests gold has historically fared better when such intervention erodes confidence, with real yields and the dollar both falling.

What we need to see before turning more negative

Our main concern is gold turning into a highly speculative trade, where price is driven by momentum and fast money rather than by fundamentals like rates, the dollar or reserve demand. Speculative rallies tend to unwind just as quickly, leaving late buyers exposed.

August offered an early preview. The WGC's attribution model found that momentum factors, led by widespread ETF buying, were a major contributor to the month's 13% gain, followed by a weaker US dollar. COMEX managed money net longs rose by 97 tonnes, while the "other reportables" category, likely reflecting trend-following funds, added another 115 tonnes. Within a month, gold had fallen about 10% from its peak as the Fed hiked and the dollar firmed.

Figure 3: A bumper month for gold was helped by global gold ETF inflows, increased futures net longs and call options

Source: Bloomberg, World Gold Council. Data as of 31 August 2026. WGC’s Gold Return Attribution Model (GRAM) is a multiple regression model of monthly gold price returns, which WGC groups into four key thematic driver categories of gold’s performance: economic expansion, risk & uncertainty, opportunity cost, and momentum. These themes capture motives behind gold demand; most importantly, investment demand, which is considered the marginal driver of gold price returns in the short run. The ‘residual’ represents the percentage change in the gold price that is not explained by factors already included. Model estimated over a five year rolling window.

Figure 4: Gold-backed ETF flows in USD billions

Source: World Gold Council. Data as of 31 August 2026. Demand captures changes in global/regional gold holdings; fund flows capture the net amount of money (in USD) that comes in or out of gold ETFs globally/regionally.

The signs we would watch for include:

• Record ETF inflows that keep building while rates and the dollar move against gold, suggesting buyers are chasing price rather than responding to fundamentals.
• Stretched futures positioning, with speculative net longs climbing to extremes and trend-following funds driving a growing share of flows.

Two further developments would add to the negative case.

• One is a sustained slowdown in central bank buying or larger sales by existing holders, which would remove the market's most reliable support.
• The other is the Fed tightening more aggressively than it has signalled, for example hiking again in 2027 to stop the energy shock from spreading into broader inflation. If nominal yields rise faster than inflation, real yields would climb further, raising the opportunity cost of holding gold and supporting the US dollar.

Our position: gold remains a portfolio diversifier

We continue to recommend a 0% to 10% allocation to gold, purely as a diversifier. Over the long run, gold's correlation with most major asset classes has been low, and with US equities it is essentially zero. Correlations have risen over the past five years, to around 0.3 to 0.5 with bonds and non-US equities, so the diversification benefit is smaller than history suggests, though still meaningful against US equities (0.159).

That said, a low correlation is not the same as reliable crisis protection. Gold's sharp swings this year, including a 10% drop within a month of its August high, show it can lose value alongside other assets. Investors should size it as a diversifier, not as a core return driver.

Table 1: Correlation between gold and other asset classes

Asset	Longer-term (30 Sep 1971 to 30 Sep 2026)	Recent period (30 Sep 2021 to 30 Sep 2026)
US Dollar Index (DXY)	-0.158	-0.392
US Equities	0.008	0.159
US Corporate Bonds	0.098	0.340
US Treasuries	0.083	0.391
World ex US Equities	0.231	0.407
Emerging Markets Equities	0.212	0.472
Commodities	0.429	0.227
Source: World Gold Council. Data as of 30 Sep 2026. Monthly data is used in the computation.

Our recommended product is the SPDR Gold MiniShares (NYSE: GLDM). For investors who prefer an ETF quoted in SGD, the SPDR Gold Shares ETF (SGX: GSD) is a potential option.

For investors who prefer a unit trust option, the LionGlobal Singapore Physical Gold A Acc SGD, which is Singapore’s first physical gold fund that is fully insured and securely vaulted locally in Singapore, can be considered.

Investors should assess suitability against their own investment objectives, financial situation and risk tolerance before investing.

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report, including all investment theses, ratings, price targets and conclusions, has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.