Rising Rates Fail to Dent Gold's Appeal

Gold prices have defied expectations by not weakening as interest rates continue to rise. According to Saxo Bank's Ole Hansen, Head of Commodity Strategy, gold ETF cash flow is returning despite a significant increase in real yields.

The real yield on the 10-year US Treasury bond has reached its highest level in over two decades at 2.63%, a 76 basis point increase from the beginning of 2026. Typically, higher real yields would put downward pressure on gold prices due to their lack of cash flow generation like bonds.

However, recent developments show that investors are no longer reacting as strongly to high real yields. Gold ETF funds have recovered after a period of decline in the first half of 2026, indicating that the relationship between gold and real yields is becoming less clear-cut.

Hansen believes that this change in investor behavior is due in part to concerns over fiscal risks. Instead of viewing high bond yields as attractive investment opportunities, some investors see them as a warning sign of increased government debt burden and repayment costs.