Gold Prices Soar Amid Record-High Yields and Fed Rate Hike Expectations
The price of gold rebounded by almost $100 per ounce on Friday as US inflation data came in line with analyst forecasts. This has led to expectations that the Federal Reserve will raise short-term interest rates at its next policy meeting, but has also eased longer-term bond yields from their record highs.
The 30-year US Treasury debt yield ended the day at 5.37% per annum, the highest since July 2004, while inflation-protected 30-year Treasury securities offered 3.06% in real interest, a record high since they were reintroduced in 2010.
Gold had dipped to $4300 per troy ounce before the CPI data was released, but leapt to almost $4394 as the numbers came in, cutting its week-on-week loss from 2.7% to 0.7%. Silver also jumped by over $2 per ounce, spiking from a 3-week low near $63.
Despite gold's traditional inverse relationship with real yields breaking down in 2022, the precious metal has now shown a positive correlation with 30-year TIPS yields, meaning that it would now need almost 5 percentage points lower real yields to justify its current price close to $4400. This has led some analysts to suggest that rising real yields can increase the opportunity cost of holding gold.