What moves gold prices: the drivers behind XAU/USD

Gold is one of the most traded instruments on retail platforms, usually quoted as XAU/USD: the price of one troy ounce in US dollars. It has no earnings, pays no coupon and has limited industrial use relative to its price. Its value depends on what people and institutions are willing to hold it for, and several forces shape that willingness at once.

This article sets out those forces. It does not forecast where gold is going.

Real yields: the opportunity cost

Because gold pays no interest, holding it means giving up the return available on alternatives such as government bonds. The most relevant measure is the real yield, the return on a bond after expected inflation, often proxied by yields on inflation-linked US Treasuries.

When real yields fall, the cost of holding gold falls with them, and investors have historically been more willing to own it. When real yields rise, the reverse applies. For many years this was the single most reliable relationship in the gold market. The European Central Bank noted in a June 2025 analysis that gold was negatively correlated with real yields from 2008 until early 2022.

That relationship then broke down. According to the ECB, it stopped holding after Russia’s full-scale invasion of Ukraine, which suggests other factors, such as geopolitical risk, began to dominate. Real yields still matter, particularly for investment flows from Western investors, but they no longer explain gold on their own.

The US dollar

Gold is priced in dollars in the main international markets. When the dollar weakens, gold becomes cheaper for buyers using other currencies, which tends to support demand. When the dollar strengthens, the reverse applies.

The link is not mechanical. Gold and the dollar can rise together at moments of stress, when investors seek both. And the dollar itself responds to many of the same forces, such as US interest rates, that affect real yields. Traders watching XAU/USD are, in effect, trading two things at once: gold and the dollar.

Central-bank purchases

The biggest structural change in the market in recent years has come from central banks. According to the World Gold Council, central banks bought more than 1,000 tonnes of gold in each of 2022, 2023 and 2024. Purchases slowed to 863 tonnes in 2025, still well above the 2010 to 2021 annual average of 473 tonnes.

The ECB estimates that central banks now account for more than 20% of global gold demand, compared with about 10% in the 2010s. Its analysis links part of this to geopolitics, finding that financial sanctions are associated with increases in the share of reserves countries hold in gold. The World Gold Council reported that buying in 2025 was widespread, with the National Bank of Poland the largest buyer.

Central-bank buying is slower to change than investor sentiment, and less sensitive to the yield on bonds.

For traders, the significance is that a large, relatively price-insensitive buyer has become a bigger part of the market. Official purchases are also reported with a lag, so their effect is often visible in hindsight rather than in real time.

Risk sentiment and geopolitics

Gold has a long reputation as a store of value in times of stress. Periods of geopolitical tension, financial instability or concern about inflation and public debt tend to attract buyers, both institutional and retail.

The effect is uneven. In acute market sell-offs gold can fall at first, as investors sell what they can to raise cash or meet margin calls, before demand for safety takes over. It is better understood as a reaction to shifts in the perceived risk of other assets than as a simple “fear gauge”.

ETF and investment flows

Exchange-traded funds backed by physical gold give investors an easy way to buy and sell exposure, and their holdings are published regularly. Flows can therefore be tracked, and large inflows or outflows often coincide with significant price moves. The World Gold Council reported ETF inflows of 801 tonnes in 2025, the second strongest year on record, alongside bar and coin demand of 1,374.1 tonnes, a twelve-year high.

ETF flows are sensitive to real yields and interest-rate expectations, which is one reason the older real-yield relationship still shows up in parts of the market.

Supply and jewellery

Supply moves slowly. Mine production reached a record 3,671.6 tonnes in 2025 according to the World Gold Council, up only about 1% on the year, and recycling adds more when prices are high. Jewellery demand, traditionally the largest single category, tends to weaken when prices rise; it fell 18% in volume in 2025.

Reading the drivers together

No single factor explains gold. At any moment, some drivers pull in opposite directions: firm real yields may weigh on ETF demand while central-bank buying continues regardless. Useful habits include watching real yields and the dollar together, following the World Gold Council’s quarterly demand data and noting where official buying is concentrated. The goal is not to predict the next move, but to understand why the last one happened.