Gold Price Rallies as 8-Week Trading Low Blamed on China, Rates, Trump

GOLD and SILVER rallied from 8-week lows in London on Tuesday as the pressure from surging bond yields and rising oil prices took a pause, while gold trading in China put bullion at the highest Shanghai premium in 3 months ahead of the No.1 gold mining and consumer nation's Golden Week holidays.

Priced in the Yuan, gold in Shanghai slipped overnight to a fresh 8-week low, trading below ¥900 per gram for the first time since 5 August.

But with the Chinese currency rising towards last week's 3.5-year highs versus the Dollar, that saw the USD equivalent price trade more than $26 per troy ounce above London quotes, marking the largest Shanghai gold premium since end-June and offering new imports of gold into China well over 3 times the typical gross incentive.

The approach of China's 2025 Golden Week holidays also saw gold and silver prices fall hard worldwide. But like 2024, last year's pullback came within a strong move higher, breaking with the pattern of 2022 and 2023, when the first week of October saw London gold trade more than 5.0% lower in Dollar terms from the start of September.

The CSI300 index of Chinese stocks today rallied just 0.1% from Monday's new 13-month low.

While the number of gold futures contracts now open on the Shanghai Futures Exchange has shrunk by 7.4% since last Thursday, eve of China's 1-day Mid-Autumn Festival, open interest in gold options contracts has grown by 14.0%.

"Since the start of the [US-Iran] war," says analyst Bernard Dahdah at French bank Natixis, "gold market participants have been particularly sensitive [to] expectations of the next Fed rates decision.

"What we have also seen since late August is a return in the correlation between gold and the 10-year yield."

But "even if gold has re-correlated with rates," says precious metals strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamo, "it's in the buy-zone especially if one believes the rates and US$ move has overextended."

Plunging in Asian gold trading on Monday after US President Trump rejected Iran's proposal for a deal around Hormuz, bullion prices in London fixed yesterday morning at $4144 per troy ounce at the City's 10:30 auction, and then settled 10 cents higher at the 3 o'clock auction − the 8th narrowest gap between London's AM and PM fixes of the past decade.

Gold then fixed around $4140 again on Tuesday morning, before rallying above $4160 at today's 3pm auction.

Silver prices in contrast set a new 8-week low at its 12 noon auction in London today, fixing around $60.85 per troy ounce before rebounding more than 50 cents in late spot trade.

Government bond prices meantime steadied on Tuesday, capping 10-year US Treasury yields at last night's fresh post-financial crisis records.

But following this month's rise to overnight rates by the Federal Reserve, traders now put a 70% chance on another rate rise from the Fed in October and a 58% chance on a further rise in December.

Consensus in the futures market says the Fed Funds rate will reach 4.85% by September 2027, almost 1 whole percentage point above today's level.

Ahead of China's Golden Week, the authorities in Beijing have ordered major banks to shut all leveraged products for retail investors in gold derivatives, the South China Morning Post said last week, continuing a multi-year clampdown on speculative gold trading in China.