Investors are chasing the latest rally in gold as the yellow metal hits strongest level in 2 months

By Isabel Wang

Inflows into gold ETFs are picking up

Gold is having a moment, and everybody wants in.

Gold settled at a two-month high on Wednesday, and investors who spent the summer waiting for an opening are now chasing a rally that many hope still has room to run.

The yellow metal popped 0.6% on Wednesday, with its most-active contract (GC00) settling at $4,467.50 per ounce after topping $4,500 in morning action. Wednesday's settlement level was the highest for gold since June 4, according to FactSet data.

Gold has surged more than 9% over the past two weeks, staging a strong comeback after spending nearly two months in a tight trading range around the $4,000 mark. The rally has accelerated after a weaker-than-expected July jobs report and softer-than-expected inflation data eased pressure on the Federal Reserve to raise interest rates next month.

The strength has lured many investors back into the gold trade, reviving memories of the extraordinary rally at the beginning of the year, when the bullion soared to an all-time high above $5,500 an ounce in January.

The SPDR Gold Shares GLD, the largest U.S.-listed gold-backed ETF, saw a net inflow of $284 million in July. That was the first month of positive inflows since March. More notably, the fund has pulled in over $2 billion of net inflows in the first two weeks of August, according to FactSet data (see chart below).

Other gold-related ETFs, such as the VanEck Gold Miners ETF GDX and the VanEck Junior Gold Miners ETF GDXJ , in July also experienced their first net inflows since at least March, according to FactSet.

"The move in gold prices over the past three to four weeks has been driven mostly by Fed expectations and the weakening of the dollar," said Aakash Doshi, head of global gold and metals strategy at State Street Investment Management.

Markets have become much less convinced that the Fed will raise interest rates in September, despite new Fed Chair Kevin Warsh's hawkish remarks at the FOMC meeting in July. Fed-funds futures traders on Wednesday were pricing just a 37% chance of a rate hike next month, down from over 70% in recent weeks. Rate expectations for 2026 have also shifted, from as many as two rate hikes before year's end to just one in December, according to the CME FedWatch Tool.

"Essentially, Warsh came out hawkish on inflation rhetoric in July, but he did not commit to a hike in September - clearly the market read that as someone who is not in a rush to tighten policy," Doshi said. "I think gold has already absorbed that."

Those changing Fed expectations have weighed on the U.S. dollar, which has fallen to multi-month lows. This has also helped lift gold, which is priced in dollars, off of a support level around $4,000, Doshi told MarketWatch in a phone interview on Wednesday.

The ICE U.S. Dollar Index DXY, a gauge of the greenback's strength against its major rivals, has fallen 1.2% over the past two months and was hovering around its lowest level since mid-June, according to FactSet data.

What makes the rebound in gold more notable is that the rally has come despite a headwind that has dogged the yellow metal for most of this year: rising real yields.

Long-term Treasury yields have stayed elevated, with the 10-year rate BX:TMUBMUSD10Y hovering near 4.7% earlier this week before pulling back on Wednesday, and close to the highest level in nearly 19 months. The 30-year Treasury yield BX:TMUBMUSD30Y traded as high as 5.28% just two weeks ago, marking its highest reading since the summer of 2007.

Historically, gold had an inverse correlation with real yields, which is the nominal return on an investment minus the rate of inflation, because when yields are higher, it raises opportunity costs of holding a non-yielding asset like gold.

If yields are rising because growth is strengthening, productivity is improving and investors expect credible monetary restraint, then gold should struggle. But gold has another function that becomes more important when the drivers of a move in yields start to change, said Stephen Innes, managing partner at SPI Asset Management.

"If yields are rising because debt supply is heavy, inflation uncertainty is persistent and investors are becoming less willing to finance governments at artificially low rates, gold is receiving a different message," he said.

If this truly is the case, higher yields would become gold's "strongest advertisement" as investors look to hedge against monetary uncertainty and excessive debt supply, Innes told MarketWatch in emailed commentary.

There is another factor working on gold's favor near term. Doshi at State Street said gold likely still has further room to run given its seasonal strength. His team sees the yellow metal climbing back toward $5,000 an ounce by the end of the year.

"This gold price trend driven by a rebound of Western investor inflows has been coupled with what was a strong rebound in central-bank demand, as well as record seasonal China retail demand in the second quarter," Doshi added.

-Isabel Wang

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08-12-26 1658ET