Gold Defies Real Yields as Fiscal Concerns Reshape Investor Demand

Gold prices have broken away from their traditional inverse relationship with real yields, a trend that's being driven by growing fiscal concerns and rising government debt burdens.

The US 10-year real yield has reached its highest level in over 20 years at 2.63%, a 76 basis point increase since the start of the year.

Despite this, gold-backed ETF holdings have continued to rise, marking a notable change from investor behavior in 2022-23 when central banks aggressively raised interest rates and real yields surged.

This decoupling suggests that investors are increasingly viewing higher long-term yields as a potential warning signal about fiscal risk, rising debt-servicing costs, and financial stability.