The conventional playbook says a surging dollar kills gold. When the greenback hits a 17-month high, bullion denominated in it becomes more expensive for foreign buyers, demand ebbs, and prices fall. That logic has been under serious stress this week, and Spain’s snap election just added another complicating layer.
Gold eased to about $4,121 per ounce on October 6, pressured by a firmer dollar and elevated Treasury yields. On the surface that looks like the dollar trade winning. But zoom out and the picture is more interesting: gold has remained above $4,000 despite elevated US bond yields, with central bank buying, geopolitical concerns, and reserve diversification helping to support prices. Reuters reported Monday that central bankers reiterated gold’s reserve-asset appeal even after this year’s surge in yields. The metal is not collapsing. It is holding a floor that the dollar alone cannot explain.
Two Crises, One Currency
The euro sank to as low as $1.1161 in Asian hours Monday, its weakest since May 2025, after four straight weekly declines, weighed down by France’s debt levels and concerns about political gridlock ahead of next year’s election. Then Sánchez made it worse. The Spanish prime minister called a snap election for November 29 after Congress rejected emergency housing measures amid nationwide protests, according to the Associated Press and other European outlets.
France’s public debt is roughly 119% of gross domestic product and is projected to rise above 120% in 2027, based on government figures reported in recent coverage and the draft budget materials. The government plans to fund itself with record net medium- and long-term issuance of about 340 billion euros in 2027, according to Agence France Trésor. The yield gap between French bonds and benchmark German Bunds has widened sharply. Market coverage has pegged the spread around the mid-150s basis points range in recent sessions, at or near the widest since the eurozone crisis era of 2011 to 2012. That is not noise. That is the bond market pricing a structurally impaired sovereign.
Barclays economists have warned that France’s draft 2027 budget is unlikely to meet its fiscal targets even if adopted, with fundamentals remaining weak ahead of next year’s presidential election. ING went further, arguing that even full passage of the package would not resolve France’s structural fiscal problem.
What the IBEX Divergence Is Actually Telling You
France’s CAC 40 fell on the day, while Spain’s IBEX 35, which slipped into the red after Sánchez’s announcement, finished higher. Santander was the single largest IBEX gainer on the day, up 4.52%. That resilience is real but it reflects Spain’s relative fiscal position, not immunity to contagion. Last week’s bond selloff hit Italian, Belgian, and Greek debt as well, and some strategists have flagged signs of spillover toward Belgium and Italy.
The investment question for precious metals readers is whether European investors facing this environment are reaching for gold even as the euro weakens against the dollar. In euros, bullion is actually cheaper than it was when gold was near its January peak above $5,600. A European buyer purchasing gold today acquires more ounces per euro than they could nine months ago. That is a meaningful demand dynamic the dollar index does not capture.
The Opportunity and the Risk
The US dollar retains its bullish tone and continues to undermine demand for the commodity in dollar terms. However, receding bets for an October Federal Reserve rate hike act as a tailwind for non-yielding bullion and help limit further losses. As of early October, CME’s FedWatch probabilities have shown markets increasingly leaning toward the Fed holding steady in October, up sharply versus late September. A Fed that pauses is gold-positive at the margin, and it partially offsets the dollar headwind.
UniCredit currency strategist Roberto Mialich cautioned in recent market coverage that investors do not rule out a further euro decline toward $1.10 in the near term amid growing political tensions. If that materializes, watch for European ETF inflows into gold-backed instruments. Physical demand from wealth managers in France and Spain rotating away from their own sovereign bonds would represent a structural bid, not a tactical one.
Bottom Line
The standard dollar-gold inverse relationship breaks down when the dollar is rising because investors distrust an entire currency bloc rather than simply preferring US assets. That is where Europe stands today. As one market participant told Reuters in recent market coverage, Europe is staring at a period of political change that could make fiscal consolidation difficult. Gold priced in euros is the beneficiary of that assessment, regardless of what the dollar index reads on any given morning.