Gold price suddenly plummets, is it worth worrying?

Gold prices are holding up relatively well despite high bond yields and a lower likelihood of a rate cut by the US Federal Reserve (FED), according to precious metals analysts at Heraeus.

In their latest update, analysts said that while China's resumption of gold purchases at the end of the year has received much attention, Poland will be the country leading central banks in 2024.

“The People’s Bank of China bought 5 tonnes of gold in November, adding to 9.3 tonnes in December, marking a return to steady gold purchases to end 2024 after a six-month hiatus.

However, in 2024, Poland led central banks in gold purchases, with a total of 89.5 tonnes from the beginning of the year to November, much higher than China's 33.9 tonnes over the same period.

The top four countries for central bank gold demand in 2024 are Poland, Türkiye, India and China (in that order) – accounting for 72% of total demand, reaching 270.8 tonnes as of November. Of these, Turkey and India have been net buyers every month in 2024, while Poland has been a consistent buyer since April,” they wrote.

“China’s return to gold buying is a positive sign for demand in 2025. However, India, Türkiye and Poland appear to be more reliable drivers. These countries are likely to continue using gold as a reserve diversifier as their currencies continue to weaken against the USD, while the yuan has appreciated since October,” they added.

Heraeus also pointed out that bond yields have risen in the new year, but gold appears to be unaffected.

“After peaking at 4.68% in April 2024, the 10-year yield fell to 3.61% in September but then recovered to 4.67%, coinciding with Donald Trump’s election victory,” the analysts said. “The rise reflects much lower expectations for Fed rate cuts as concerns about future inflationary policies have prompted Fed officials to deliver cautious messages. The market now reports a near 25% probability of no further rate cuts before the end of July 2025.”

While high bond yields typically reduce the appeal of gold as a non-yielding asset, concerns about inflation and geopolitical uncertainty continue to support the safe-haven appeal of gold. Experts note that when yields rose nearly 1% last week, gold prices also rose more than 2%. The historical relationship between bond yields and gold remains unusual.