Gold Falls but Supported by Soaring Government Debt

The price of gold dipped on Monday but remains supported by soaring government debt levels. The US Dollar index, which measures the currency's value against its major peers, reached a two-month high following last week's Federal Reserve interest rate hike.

BullionVault notes that while high bond yields are normally negative for gold, this month's jump is 'more a reflection of fiscal deficits, heavier issuance and a higher term premium' than a traditional Fed-driven rates story. Daniel Hynes, commodity strategist at ANZ, said the increase helps explain why gold's inverse relationship with US yields has weakened since 2022.

The gross interest payments on outstanding debt were equivalent to 4.0% of US GDP and 3.3% of UK GDP in 2025, rising to around 4.3% and 3.4% respectively by 2027 as maturing debt is refinanced at higher borrowing rates.

Ole Hansen, head of commodity strategy at Saxo Bank, said that ten-year yields on inflation-protected US Treasury bonds have hit a 20+ year high this month yet gold ETF holdings continue to rise. This 'striking break' from gold's traditional inverse relationship with real yields suggests investors increasingly view rising yields as a signal of fiscal and debt risk rather than simply an attractive alternative to gold.