Gold ETFs Hit Seven-Month High as Real Yields Reach 20-Year Peak

Gold-backed exchange-traded fund holdings rose to a seven-month high on Friday. This occurred despite 10-year US real yields reaching their highest level in two decades at 2.63%.

Saxo Bank’s Ole Hansen stated this divergence marks a break from historical trends. He noted that fiscal concerns now drive demand more than the traditional inverse link to bond returns.

Yield and Gold Relationship Shifts

Historically, rising real yields pressured gold prices because bonds offered better returns. Hansen explained that gold does not pay interest, making it less attractive when bond yields increase significantly.

During the 2022 rate-hiking cycle, ETF outflows were common while gold prices held firm. Central bank buying offset investor selling, but the current ETF resilience is a new development.

Fiscal Risk Drives Current Demand

Investors now view high long-term yields as a warning of fiscal instability. Hansen argued this perception makes gold a safer asset outside the traditional financial system.

This shift suggests the opportunity-cost model is being superseded by debt-servicing concerns. The broadened investor base includes Western ETF buyers and Asian institutions.

Fed Hike Priced Into Market

Gold prices remained stable after the Federal Reserve’s recent interest rate hike. Hansen observed that the market had already priced in this hawkish monetary policy move.

Kitco reported that demand remains firm even with elevated yields. The data shows a market where investors are less sensitive to interest rate changes.