Gold Defies Bond Yield Spike as Central Banks Hedge Against Fiscal Strain

The gold market is defying a long-standing rule by holding steady despite a significant spike in bond yields, which typically sends bullion prices lower. The 10-year Treasury yield hit its highest level since 2002 at 5.34% this week, driven by sticky inflation, heavy government bond issuance, and an AI-fueled investment boom.

Gone is the traditional relationship between gold and real rates, which has been replaced by a 'debasement and de-dollarisation premium' that now stands at roughly $840 per ounce. This premium cannot be explained by real yields or the dollar, according to Reuters analysis.

The World Gold Council estimates central banks bought 863 tonnes of gold in 2022, with Poland, Kazakhstan, and Brazil leading the charge. Central banks are swapping dollar reserves for bullion as a hedge against sovereign debt levels and currency volatility.