10 APRIL 2025
This chart highlights the historically strong inverse relationship between the gold price (red line, which is inverted) and U.S. 10-year inflation-adjusted (real) yields (blue line).
Typically, rising real yields hinder the gold price because higher returns on risk-free assets reduce the appeal of non-yielding bullion. However, this relationship has broken down significantly since early 2022.
The turning point coincided with U.S. and EU sanctions being imposed on Russian overseas assets, which enhanced gold’s role as a neutral reserve asset, particularly for Central Banks seeking to diversify away from dollar-based reserves.
Whilst this shift supports gold’s long-term appeal, the recent divergence between real yields and gold prices has reached extreme levels.
Historically, such deviations have tended to mean-revert, either via lower gold prices or declining real yields.
US borrowing costs have been declining in recent weeks but, with bullion racing to a record high above U$3,000/oz, we should rule in the possibility of a near-term correction in the gold price.
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