Gold Resilient as Debt Concerns Offset Rising Yields
Spot gold saw minimal movement in late U.S. trading on Monday, hovering near $4,137.70 an ounce, down 0.05% for the session. Spot silver, meanwhile, rose 1.04% to around $60.900. The fading likelihood of an October Federal Reserve rate hike provided some support to precious metals, though a stronger dollar and elevated long-dated Treasury yields limited gold’s recovery. The 10-year U.S. Treasury yield reached 5.32%, nearing its highest level in almost two decades, a level that would typically weigh heavily on gold prices.
Despite the surge in yields, gold has maintained resilience, staying above the key $4,000 level. This steadfastness was a focal point at the London Bullion Market Association’s annual Global Precious Metals Conference. Panelists suggested that gold’s ability to hold its ground amid rising yields signals growing investor concerns about government finances. Vikram Dhawan, head of commodities at Nippon India Mutual Fund, noted that global debt continues to rise, pushing governments toward financial repression to manage borrowing costs.
The traditional inverse relationship between gold and bond yields has weakened significantly since the pandemic, at times even becoming positive. Dhawan attributed this shift to a rising term premium, reflecting greater compensation demands from private investors for holding longer-dated government debt. Shayne McGuire, a portfolio manager at the Teacher Retirement System of Texas, predicted that gold’s role in strategic asset allocation will expand due to bond market challenges. Wei Yan, a macro portfolio manager at Dymon Asia, observed strong buying from Chinese investors, who view gold as a hedge amid struggling domestic markets.
Michael Khouw, chief strategist at YieldMax, acknowledged near-term headwinds for gold, as money-market yields around 5% offer attractive alternatives. However, he emphasized that the long-term case for gold remains strong, driven by fiat currency debasement and persistent inflation. Panelists agreed that mounting sovereign debt is a long-term issue unlikely to be resolved by political changes, reinforcing gold’s role as a hedge against fiscal risks.