Gold Dips to $4,340 as US Debt Costs Outpace Fed Rate Hikes

Spot gold fell to $4,340 per ounce before recovering to $4,349 on Monday. This price action followed the US dollar reaching a two-month high after the Federal Reserve raised interest rates. The move marked a new six-week low for the precious metal.

Analysts argue that soaring government debt continues to support gold prices despite higher yields. US Treasury 10-year yields dropped below 5.00%, easing the immediate burden of servicing national debt. This shift weakens the traditional inverse relationship between gold and bond yields.

Debt Servicing Costs Outpace Defense Spending

OECD data shows US interest payments will hit 4.3% of GDP by 2027. This figure exceeds the current defense spending level of 3.2% of GDP. The UK sees a similar trend with interest costs rising to 3.4% of GDP.

Japan faces a sharper increase in its interest burden as monetary policy normalizes. Its debt service cost is projected to rise from 1.2% to 2.2% of GDP by 2027. Germany remains the lowest spender among major economies at 1.3% by 2027.

Investors Buy Gold Amid Fiscal Concerns

Gold ETF holdings rose last week despite the recent rally in real yields. The SPDR Gold Trust expanded by 0.9% to hold 1,057 tonnes. This represents the highest level of backing in five months.

Strategists at Saxo Bank note this break from historical trends. Investors now view rising yields as a signal of fiscal risk rather than a threat to gold. This perception drives continued accumulation of the metal.

China Premium Narrows Ahead of Summit

Shanghai gold prices traded at a nearly $16 premium over London last week. This premium quadrupled from the previous week, indicating strong domestic demand. However, the gap narrowed to $6 on Monday ahead of the US-China summit.

Silver prices rose by 1.2% to $67.05 per ounce before easing. Industrial demand supports silver, unlike gold which serves primarily as a store of value. Platinum and palladium also gained ground as borrowing costs eased.