Research
Gold and real yields, an old relationship under strain
For years gold moved almost tick-for-tick against inflation-adjusted bond yields. Then central banks started buying, and the relationship started to break down.
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Gold pays no interest. That simple fact explains most of its behaviour over the past two decades.
The opportunity cost argument
When you hold gold, you give up the yield you could have earned on a safe bond. What matters is the real yield, meaning the yield after inflation. In the US this is usually measured with inflation-protected Treasuries (TIPS).
- When real yields fall, holding gold costs you less, so gold tends to rise.
- When real yields rise, gold has to compete with a genuinely attractive safe asset, so it tends to fall.
Where the relationship strains
Relationships in markets hold until a large, price-insensitive buyer shows up. Central banks, particularly in emerging markets, have been steady net buyers of gold, partly to diversify reserves away from the US dollar. That demand doesn’t care much about real yields.
Open questions
- How much of recent gold demand is structural (reserves) versus cyclical (investors)?
- Does the relationship reassert itself once central bank buying slows?
- What does this mean for gold’s role as a portfolio hedge?
Suggested sources: World Gold Council central bank statistics; FRED series DFII10 (10-year TIPS yield).