Gold Defies Rising Bond Yields with Persistent Premium Demand

Gold prices have defied expectations by remaining above $4,000 an ounce despite a surge in U.S. bond yields, suggesting that a persistent premium driven by reserve diversification and geopolitical hedging is driving demand.

Nicky Shiels, metals strategist at MKS PAMP, estimates this 'debasement and de-dollarisation' premium has risen from $120 an ounce before 2022 to over $1,000 since then. It currently stands at roughly $840 an ounce.

This premium is distinct from the traditional relationship between gold prices and real yields, which has been altered by Western sanctions freezing Russia's official reserves and subsequent efforts by central banks to diversify their reserves away from dollar assets.

Analysts say this demand will continue once the U.S. Federal Reserve's tightening cycle ends, with institutional investors likely to increase their holdings of gold-backed ETFs and large bars.