Jefferies says gold may recover if real rate pressure eases

Investing.com -- Gold has declined in recent months and is trading near $4,000 per ounce, according to Jefferies. The firm said the rate trajectory is the main factor affecting gold prices through its impact on investment demand.

Jefferies said gold and real rates have recoupled. The firm's analysis shows gold and gold equities underperform when real rate expectations initially rise, but 12-month performance is generally better if real rate pressure subsides.

Real rates have risen materially, which Jefferies said is a clear macro driver of gold's recent weakness. Higher real rates increase the opportunity cost of holding gold, and abrupt moves lead to significant selloffs. The change in rate expectations from the beginning of 2026, when 1-2 rate cuts were anticipated, to now, when 1-2 rate hikes are expected, has led to gold selling off about 25% from peak levels. First quarter central bank demand was also weaker.

Jefferies examined periods when real rates moved materially higher. The initial reaction at three months was significant, with gold and gold equities falling 22.9% and 35.3% during the 2013 taper tantrum, 5.0% and 17.0% around the 2018 real-rate peak, and 6.7% and 28.6% during the 2022 tightening cycle. Performance in the following 12 months varied depending on whether real rate pressure subsided.

Real yields are elevated, with the 10-year TIPS real yield around 2.41%, the Cleveland 10-year real rate around 2.08%, and break-even inflation around 2.27%, compared to 1.94%, 1.67%, and 2.25% at the beginning of 2026. Gold appears to have already reacted, with GLD down 13% in three months and GDX down 17%.

Jefferies said real rates are no longer a new shock, which differs from 2013. The firm said gold has more support than in prior rate-driven downturns, citing central bank buying based on recent second quarter 2026 data, geopolitical uncertainty, fiscal concerns, de-dollarization, and hard asset allocation. Rate markets are biased toward tighter policy, but this could change if the US-Iran war resolves.

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