High interest rates are usually bad for the price of gold. But in the coming weeks, investors will have good reasons to change their calculations, says Astrid Dörner.
Astrid Dörner is chief markets reporter at Handelsblatt. Photo: Max Brunnert for Handelsblatt Media Group, Getty Images/Bloomberg Creative [M]
Inflation worries are back. The price of Brent oil passed the $100 per barrel mark on Wednesday for the first time since July. As a result, bond yields rose and with them the prospect of interest rate increases. It is a given that this will happen this Thursday at the European Central Bank (ECB).
In such an environment, gold prices usually fall. This is because the precious metal does not generate any ongoing income and therefore becomes less attractive compared to bonds, for example.
However, investors could change their calculus in the coming months. Ulrich Urbahn, head of the research department at Berenberg Bank, speaks of a “golden autumn for precious metals”. This could still be the case even if the US Federal Reserve (Fed) raises interest rates next week.
There are two reasons for this, both of which are related to politics in Washington. Firstly, the rising national debt in the USA is now causing unease. After US Treasury Secretary Scott Bessent recently intervened in both the yen and the market for long-term government bonds, he is considered on Wall Street to be “the most activist finance minister in decades,” as Krishna Guha, central bank expert at Evercore ISI, put it.
This leads to investors demanding higher risk premiums to compensate for the increased unpredictability. According to Urbahn, this new uncertainty also makes gold more attractive.
US Treasury Secretary Scott Bessent: Considered “activist” on Wall Street. Photo: AP Photo/Gerald Herbert
The second reason for a possible rise in gold prices is the congressional elections at the beginning of November. They are increasingly becoming the focus of investors and bring with them new uncertainties.
In view of the rising prices, the poll numbers for US President Donald Trump's Republicans are weak, as shown by a survey commissioned by the Financial Times. UBS expects that the Democrats could achieve the majority in the House of Representatives. This would mean that for the first time since the beginning of Trump's second term, all chambers would no longer be under Republican leadership.
The House of Representatives has the opportunity to launch a full-scale investigation, which could paralyze an already divided country. In order to prevent this, the likelihood of “market political election gifts”, as Berenberg puts it, increases. “The associated loss of credibility for the US government is likely to benefit gold further.”
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Aside from the USA, China plays an important role in gold price developments. The central bank of the People's Republic is considered a major buyer. It has been increasing its stocks for 22 months in a row and now sits at 2,387 tons, according to data from the analysis house Kobeissi. In August it acquired over 20 tonnes, the largest monthly purchase in almost three years.
Ulrike Hoffmann-Burchardi, head of investment at UBS, also considers the precious metal to be an important element for diversifying and hedging portfolios, as she writes in a current analysis. She advises buying in weak phases and makes it clear: “The long-term investment argument for gold is intact.”
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