Gold Decouples from Real Yields as Fiscal Concerns Drive Investor Demand

Ole Hansen, Head of Commodity Strategy at Saxo Bank, points out that gold-backed ETF holdings have been rising even as 10-year real yields hit a 20-year high. This divergence highlights a disconnect between gold demand and what historically has been a strong inverse relationship with real yields.

The real yield is the return an investor earns on a bond after accounting for inflation, and historically, it has been regarded as key to determining the direction of gold. When real yields rise, gold has traditionally faced pressure. However, in 2022-23, when central banks aggressively raised interest rates and real yields surged, investors responded by reducing their exposure to gold by exiting ETFs.

But today, Hansen says, the picture is different. Real yields are rising, with the 10-year tenor reaching its highest level in 20 years amid sticky inflation and a renewed surge in long-end government bond yields. Yet instead of triggering another wave of ETF liquidation, investor demand for gold is showing resilience.

Hansen attributes this to growing concern about fiscal sustainability and rising government debt burdens. Investors may increasingly view higher long-term yields not simply as an attractive alternative to gold, but also as a potential warning signal about fiscal risk, rising debt-servicing costs, and financial stability.