Gold and Gold Mines – Short-Term Interest Rate Pressure, Long-Term Support

Gold is currently caught between a more restrictive U.S. monetary policy and continued robust structural demand. On Friday afternoon, September 25, the price of gold stood at around $4,283 per troy ounce, down about 2.1% from the previous week’s level. In particular, rising U.S. bond yields and expectations of further interest rate hikes weighed on the precious metal. Recent developments show that geopolitical uncertainty and inflation concerns alone do not guarantee rising gold prices. (ca.marketscreener.com)

On September 16, the U.S. Federal Reserve raised its benchmark interest rate by 0.25 percentage points to a range of 3.75–4.00%. It justified the decision by citing persistently high inflation coupled with robust economic growth. As a result, monetary policy remains a significant headwind for gold. Since gold does not generate current income, more attractive interest rates on liquid investments and bonds increase the opportunity cost of holding gold. Real interest rates—that is, interest rates adjusted for inflation expectations—are particularly crucial in this context. (federalreserve.gov)

The situation in the Middle East also has a two-way effect. Escalations can boost demand for safe-haven assets, but at the same time, higher energy prices can intensify inflationary pressures and thus raise interest rate expectations. Conversely, a de-escalation can reduce geopolitical risk premiums, while simultaneously improving interest rate prospects through falling oil prices. Therefore, which of these effects predominates is crucial for the direction of the gold price.

Support continues to come from central banks, although their demand is less consistent than the notion of a continuous buying trend might suggest. According to the World Gold Council, net purchases rose to approximately 289 metric tons in the second quarter. Poland and China were among the leading buyers. At a total of approximately 345 metric tons, however, demand in the first half of the year remained at its lowest level for a first half since 2022. The diversification of currency reserves remains a structural argument in favor of gold; however, central bank purchases do not constitute a reliable floor for the price. (gold.org)

In addition, investment demand has regained importance. In August, physically backed gold ETFs worldwide recorded inflows of approximately $18 billion. Their gold holdings rose by 121 metric tons to a record high of 4,189 metric tons, driven in particular by North American and European funds. This development reflects broad investor interest. At the same time, ETF outflows can amplify short-term corrections when interest rate or market expectations change. (gold.org)

Gold Mines: Earnings Potential with Additional Risks

Gold mining stocks allow investors to participate in producers’ profits. If the gold price rises while costs remain largely stable, their margins and cash flows can grow disproportionately. However, this operational leverage also works in the opposite direction: falling gold prices or rising production costs can significantly weigh on profitability.

The industry continues to benefit from high gold prices but is facing increasing cost pressures. According to the World Gold Council and Metals Focus, average all-in sustaining costs—the costs of production including essential expenses for maintaining operations—stood at $1,785 per ounce in the first quarter of 2026, 16% above the previous year’s level. Nevertheless, thanks to high gold prices, the industry achieved exceptionally strong margins and cash flows. However, these quarterly figures should not be extrapolated unchanged to the coming months: lower selling prices, as well as higher energy, material, and mining royalties, could reduce margins again. (gold.org)

When investing in gold mines, the focus should therefore be on the quality of the companies: solid balance sheets, competitive costs, reliable production, and a disciplined investment policy. In addition, political risks in producing countries and future capital requirements must be taken into account. A high gold price alone does not make a mining stock a bargain. Gold mining stocks remain equity investments and can suffer significant losses during a general stock market decline, even if gold remains relatively stable.

Conclusion We remain constructive on gold over the medium to long term, but expect increased volatility in the short term. In our view, the diversification of central bank reserves, as well as geopolitical and fiscal uncertainties, continue to support a strategic allocation to gold. Currently, the more restrictive U.S. monetary policy and the risk of further rising real interest rates argue against a rapid, broad-based expansion.

We therefore prefer to maintain the strategic gold allocation within the established ranges and to consider staggered additions in the event of setbacks when underweight. Gold can contribute to diversification but does not offer guaranteed protection against every market decline. We view gold mining stocks as a selective addition within the equity allocation. Their focus is on income opportunities; the strategic hedging function is primarily covered through direct investment in gold.

Mimi Haas, Lic. rer.pol. HSG, M.A. in Banking and Finance HSG, Partner

_{Sources: Degussa, Reuters, and the Financial Times.
As of: September 28, 2025}