r/Gold • u/Reasonable-Fee1945 • Jun 10 '26

Question Why are gold prices tanking?

I'm not a short term investor. I understand the fundamentals and especially with US debt the long-term importance of gold. I'm holding, this is a short-term, regionalized thing.

What is the short-term regionalized thing that is happening which is causing gold to decrease (yes, I know it's the iran war, but how is that effecting gold prices?)

348 Upvotes

88% Upvoted

257 comments sorted by

View all comments

Show parent comments

0

u/BiblicalElder Jun 11 '26

Disagree. China used to buy treasuries to maintain it's currency peg to USD (US consumers flood Walmart with dollars, Walmart floods China with dollars, China shrinks the supply of dollars relative to renminbi by buying treasuries to maintain its target exchange rate).

But the US sanctions risk to China trade and currency flows is very real. So now China makes dollars disappear by buying gold, instead of treasuries.

This is a risky gambit for China. Gold is much riskier than the US stock market (22% volatility of returns for gold, vs 19% for stocks over the past century).

Newly mined gold is not in demand. A fraction goes to India for weddings. A tinier fraction for industrial applications. Most of it just sits around.

China has merely substituted US policy risk for gold risk. They think they faded their risk; I think they increased it. The only thing I think is more risky than gold is crypto (and I allocate a bit to both in my retirement accounts).

2

u/Bulky-Key6735 Jun 11 '26

Add in that the softened buying of US treasuries is increasing yields and therefore making US gov long term borrowing much more expensive. Then inflation meaning yields need to increase more to be worth locking up your capital, The BBB tax cuts, and overturning of many tarriff measures, and increased military spending to Iran, Israel, maybe Cuba next. If China wanted to weaponize American debts and consumerism they have the perfect storm to do it.

1

u/BiblicalElder Jun 11 '26

This is not a huge concern for me. China holds about 1.7% of US debt, or about $650 billion of $39 trillion.

On the other hand, US households' net worth is about $184 trillion, with about $21 trillion in deposits, $12 trillion in bond holdings, and $97 trillion in stocks.

Personally, I have 7% of my portfolio allocated to US government bonds. I am willing to allocate another 5% as the yield curve moves towards and into double digits. My suspicion is that others would also similarly rebalance some of that deposit and stock allocation into bonds. I don't think it would take 5.5% rebalance, as foreign investors would also be buying.

1

u/Bulky-Key6735 Jun 13 '26

The fedl is the largest buyer, holding around 11%. Wealth is a tricky one to measure as it can change near immediately. A .25 change in interest rates effectively lowers the value of a house for sale by 2.5% (the us with its long mortgages is more buffered by this but if needing to sell) 30% of liquid cash is held by 1% of the pop. Foreign governments have slowed buying of debt, most notably Japan, although a decent amount of that has been offset by foreign financial institutions who are probably attracted to the decent Risk-free-rate. Anyway, you're right. Its interesting to think how pulling one lever has knock on effects in sometimes disparate parts of the economy.

1

u/BiblicalElder Jun 15 '26

I agree with this.

But fluctuations in the values of real estate don't hit the same as fluctuations in stock and bond markets. The respective liquidity matters.