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Spot gold was little changed in late U.S. trading Monday, trading near $4,137.70 an ounce, down 0.05% on the session, while spot silver firmed 1.04% to around $60.900. Fading expectations for an October Federal Reserve rate hike supported metals, though a stronger dollar and long-dated Treasury yields near multi-decade highs capped gold’s rebound.
The 10-year U.S. Treasury yield has climbed to 5.32%, near its highest level in almost two decades. Under normal circumstances, such a sharp rise in global yields would have dealt a heavy blow to gold. Yet even as yields pushed above 5%, prices have held solidly above the key $4,000 level—displaying resilience that has taken center stage at the London Bullion Market Association’s annual Global Precious Metals Conference.
During a panel discussion titled “Structural Story, Tactical Trade, and Reconciling the Debasement Narrative,” moderated by Nicky Shiels, head of research and metals strategy at MKS PAMP, fund managers said gold’s steadfastness amid surging yields may be an important signal that investors are growing increasingly concerned about government finances. Vikram Dhawan, head of commodities and fund manager at Nippon India Mutual Fund, said global debt continues to rise by trillions of dollars each year, leaving governments with little choice but some form of financial repression—effectively tolerating higher inflation to keep borrowing costs contained. “I see visibility of higher fiscal debt, but I don’t see visibility of any fiscal discipline,” he said.
The traditional inverse relationship between gold and bond yields has weakened materially over the one-, two- and three-year horizons since the pandemic, and at times has even turned positive, Dhawan said. He added that rising yields are increasingly reflecting a higher term premium—the extra compensation investors demand for holding longer-dated government debt—rather than expectations for stronger growth or tighter monetary policy. At the same time, the traditional buyer base for sovereign debt is shifting: central banks and pension funds, historically less price-sensitive, are being supplemented or replaced by private investors demanding greater compensation for taking on duration and fiscal risk, which could make the disconnect between gold and yields more persistent.
Shayne McGuire, portfolio manager at the Teacher Retirement System of Texas, noted that gold has historically been largely absent from strategic asset-allocation discussions at major U.S. pension funds, as allocations were generally too small to matter. “I think in time that will change because of the challenges of the bond market,” he said. On the demand side, Wei Yan, a macro portfolio manager at Dymon Asia, said Chinese investors have fewer alternatives to protect wealth when domestic property and equity markets are struggling, and keep buying the dip—a trend reflected in gold’s relatively firmer performance during Asian trading hours.
The near-term headwind remains real, according to Michael Khouw, chief strategist at YieldMax. With money-market accounts and other relatively liquid investments yielding around 5%, there is a natural substitution effect that weighs on gold as investors seek income. “It’s not surprising gold is under pressure,” he said. Yet Khouw emphasized that the fundamental case for owning gold remains intact: investors buy the metal because fiat currencies steadily lose purchasing power over time, and inflation effectively acts as a tax on savings.
Khouw expects inflation to settle at a higher structural level—above 3% rather than returning below 2%—and argued that monetary policy is largely responding to inflationary pressures rather than creating them, with the deeper problem lying in government spending and fiscal policy. While jewelry and other price-sensitive physical demand has fallen sharply as prices have risen, potentially keeping gold range-bound or volatile in the short to medium term, panelists broadly agreed that mounting sovereign debt is a long-term problem unlikely to disappear with a change in political leadership. “Regardless of political party in the seat running the White House or government, there’s really been no attention to one of the key drivers of gold, which is the debt and deficit,” McGuire said.
