Gold Defies Rising Yields as Investors Seek Liquidity and Fiscal Risk Protection

Real yields in the U.S. have reached their highest level in over two decades, but gold ETF holdings are on the rise, indicating a shift away from the traditional inverse relationship between gold and interest rates.

Ole Hansen, Saxo Bank's head of commodity strategy, notes that investors' pricing logic for gold is evolving, moving from a 'rates trade' toward a 'liquidity trade' and a 'fiscal risk premium.'

The U.S. 10-year real yield climbed to 2.63% last Friday, its highest level in more than 20 years, having increased by 76 basis points since the start of the year.

Meanwhile, total holdings in gold-backed ETFs have rebounded and now stand at their highest level in seven months, defying the conventional wisdom that rising real yields would pressure gold prices.