BREAKING: Capital Economics forecasts gold $XAU will continue to face downward pressure for the remainder of 2026, as the Fed maintains its tightening cycle. Following the September interest rate hike to 3.75-4%, the market is pricing in a high probability of another increase in December, pushing US bond yields to high levels (10-year around 5.1%) and supporting the USD.

Gold $XAUT is a non-yielding asset, so rising real interest rates increase the opportunity cost of holding the precious metal. When investors can receive attractive positive real yields from government bonds, money tends to shift away from gold, while a strong USD makes gold more expensive for holders of other currencies. This is a typical inverse correlation between gold and real yields, which has largely dominated price movements this year.

Nevertheless, support from net central bank buying and safe-haven demand have limited a deeper decline. However, as long as the Fed continues to signal "higher for longer" and has not reversed its policy, short-term pressure on gold will remain dominant, consistent with Capital Economics' view of a gradual downward trend in the coming months.

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