Gold Prices Defy Rising Rates as Central Banks Boost Demand

The global bond selloff has caused government yields to rise across major economies, but surprisingly, gold prices have not fallen. Instead, gold ETFs like the SPDR Gold Trust GLD have rallied 1.5% on September 2 and gained 8.4% over the past month.

The sharp increase in bond yields is due to higher oil prices, government debt issuance, and expectations that central banks may keep interest rates high for longer. However, gold's non-yielding nature would normally make it less attractive in a rising rate environment.

However, investors are becoming increasingly concerned about government finances, currency stability, and the long-term value of fiat money. Central banks like the Dutch central bank have been buying more gold to diversify their reserves and prepare for potential crises.

The demand from central banks is expected to continue, with Goldman Sachs predicting an average monthly purchase of 50 tonnes of gold in 2026. This could provide a significant source of support for gold prices, particularly if investors become worried about currencies or sovereign debt.