Gold Prices Squeezed by Two Forces: Interest Rates as Fuel, the Fed as Brakes
Jakarta, CNBC Indonesia - Gold prices came under pressure after soaring high. However, the decline was relatively contained as the prospect of lower long-term real interest rates managed to offset lingering inflation concerns driven by rising oil prices.
According to Refinitiv, gold closed at US$4,517.87 per troy ounce on Thursday (20/8/2026), down 0.07%. This decline contrasted with the previous day’s surge of up to 4.3%.
Gold prices began to recover on Friday (21/8/2026) at 06:39 WIB, rising 0.13% to US$4,523.88 per troy ounce. A day earlier, gold had jumped more than 4%, while the US dollar and US bond yields fell sharply after the US Treasury Department announced plans to increase buybacks of long-term Treasury bonds.
Market analyst Jim Wyckoff of American Gold Exchange said gold prices were affected by profit-taking by dealers. “Gold is under pressure from profit-taking after recording strong gains in the previous session,” he said, as quoted by Refinitiv.
According to Wyckoff, the Federal Reserve’s hawkish meeting minutes and rising oil prices also weighed on gold by reigniting inflation concerns. However, gold managed to trim some of its losses after US Treasury Secretary Scott Bessent said the government could increase Treasury bond buybacks, potentially exceeding US$4 billion per issuance.
“Gold is supported by the prospect of lower long-term real interest rates,” said independent analyst Tai Wong.
Gold is often viewed as a hedge against inflation. However, higher interest rates can reduce gold’s appeal by increasing the opportunity cost of holding a non-yielding asset.
The Federal Reserve in Focus
The minutes of the Federal Reserve’s July meeting, released on Wednesday (19/8/2026), showed that several officials remained concerned about inflation. Some officials even kept open the possibility of further interest rate increases.
Based on the CME FedWatch Tool, market participants currently estimate a 67.4% probability that the Fed will hold interest rates steady in September.
Meanwhile, oil prices continued to climb and reached their highest level in more than three weeks. The stalemate in negotiations related to the Iran conflict renewed market concerns about potential oil supply disruptions from the Middle East.
Morgan Stanley assessed that there is still a chance for gold prices to break through US$5,000 per troy ounce in 2027, potentially even sooner, although volatility remains a risk. “As our US economists expect the Fed to hold interest rates, we see an opportunity for gold to break through US$5,000 per ounce in 2027, potentially even earlier,” wrote Morgan Stanley analysts.