Gold Decouples From Real Yields as Fiscal Risks Rewrite Investment Logic

The traditional relationship between gold prices and real yields has broken down, according to Ole Hansen, head of commodity strategy at Saxo Bank. While the U.S. 10-year real yield climbed to its highest level in over two decades last Friday, gold-backed exchange-traded funds (ETFs) have rebounded to a seven-month high.

This marks a significant shift from the past, when higher real yields led to a decline in gold prices and ETF holdings. However, Hansen notes that investors are no longer treating higher long-term yields as a higher hurdle for owning gold, but rather as a warning signal of mounting fiscal risk, heavier government debt-service costs, and rising financial-stability concerns.

This change in sentiment has led to increased central-bank purchases, which have more than doubled compared to the 2010-2021 average. According to FTSE Russell's Indrani De, this yield-insensitive demand is reshaping how gold is priced.