Gold Investing Leaps as Surging Interest Rates Zap Prices

Investment gold buying hits 5-year high...

The STEEP DROP in gold prices is finding strong demand among private investors, with net inflows on BullionVault setting a 5-year high in September, says Adrian Ash at the world-leading marketplace.

Currently used by its global client base to own $8.2 billion (£6.2bn, €7.2bn, JPY1.3 trillion) of physical precious metals, the platform saw gold investment demand outweigh selling by more than one-third of a tonne last month.

That net inflow of 389 kilograms was the heaviest addition to client gold holdings − all secured and insured in each user's choice of London, New York, Singapore, Toronto or most popular Zurich − since June 2021 and the largest by value at $54 million (£40m, €47m, JPY8.4bn) since March 2020's all-time record of $102m.

So while the kryptonite of soaring bond yields is weakening the price of gold, it's only serving to boost investment demand for the precious metal.

It's natural for gold prices to wilt when bond yields jump. Higher interest rates raise the opportunity cost of owning bullion rather than keeping cash in the bank or bonds, and higher borrowing costs also curb speculative betting in the derivatives market.

But while gold is now trading at what were new record prices this time last year, long-term interest rates are nearing their highest in a quarter century. This mismatch reflects both continued central-bank gold buying and widening investor concerns over the sustainability of Western government deficits and debt.

Gold last month made its steepest September price drop in 15 years, losing 8.5% in Dollar terms and reversing almost three-quarters of August's gold price leap.

On BullionVault, the number of investors choosing to buy the precious metal rose 9.8% from August's figure, reaching a 3-month high that was almost three-fifths the size of March's all-time record (-43.7%). The number of sellers in contrast fell 26.5% to the fewest since December 2024, running at barely one-third this January's all-time record (-62.7%).

Together, that raised the Gold Investor Index by 1.8 points to 55.9, the highest reading since June for this unique measure of revealed preference among private investors using BullionVault, 9-in-10 of whom live in Western Europe or North America. 

Now averaging 54.2 over the past 5 years, this monthly index would read 50.0 if the number of net buyers exactly matched the number of net sellers. Setting a post-pandemic peak of 60.7 this March, the Global Gold Investor Index hasn't shown a negative balance since the record-low reading of 47.5 two years earlier.

Silver prices meantime fell more sharply than gold in September, with the more industrially-useful precious metal losing 13.6% in Dollar terms and also reversing three-quarters of August's jump.

Private investors bought the most since June net of selling, adding 3.5 tonnes to client holdings on BullionVault at a 9-month high of 1,139.0 tonnes. The Silver Investor Index also rose as the number of buyers outstripped sellers for the 20th month in a row, increasing by 1.3 points to a 2-month high of 52.5.

First-time investing in precious metals meanwhile retreated a little last month from August, with the number of new BullionVault users dropping 6.6%. While that took it below half of last September's figure for new users (-52.5%), it was still the 5th strongest September in 21 years of operation.