Gold Rises Again Amid Financial Uncertainty and Shifting Global Capital

As global economic and trade policy uncertainties intensify, the gold market is experiencing a new wave of gains, driven by a reallocation of global capital, a weakening U.S. dollar, and a widening gap between U.S. Treasury yields and those of highly rated countries such as Germany, according to Jeremie De Pessemier of the World Gold Council.

Real Interest Rates Are No Longer the Sole Driver

For years, real interest rates were the primary driver of gold prices, showing an inverse relationship: as real rates rose, gold became less attractive as a non-yielding asset. However, this pattern has begun to fade since 2022, with both rates and gold rising simultaneously—a sign that new forces have entered the equation. These include a growing investor appetite for risk hedging and an unprecedented wave of gold purchases by central banks, particularly in emerging markets.

Central Banks Take the Lead

Since 2022, central banks—especially in developing economies—have stepped up their gold purchases at a historic pace. This shift reflects a desire to diversify reserves away from the U.S. dollar, bolster balance sheets amid geopolitical volatility, and rely on gold’s proven performance during periods of crisis.

Capital Flows Out of the U.S.

Growing concerns over economic and trade policies have eroded global investor confidence, prompting a shift away from U.S. Treasury bills. The results are clear: a declining dollar, surging gold prices, and a widening yield gap between U.S. and German 10-year bonds.

U.S. Debt Concerns Ring Alarm Bells

One of the main factors supporting higher gold prices today is rising concern over the financial sustainability of the United States. The gap between U.S. Treasury yields and swap spreads has widened significantly, signaling reduced investor appetite for U.S. debt at current prices—leading to higher yields.

According to a simplified statistical analysis, this spread—a key indicator of financial stress—shows a strong correlation with gold movements, reinforcing the growing connection between financial risk and gold demand as a safe haven.

The U.S. at a Fiscal Crossroads

The expansionary spending that began in the early 2000s, coupled with shifts in demand for Treasuries, has left the U.S. in a fragile fiscal position. At the same time, official institutions like the Federal Reserve and foreign governments are reducing their holdings of U.S. bonds, while private foreign investors—who are more price-sensitive—have become the largest holders. These investors constantly compare U.S. yields to those available in other markets.

Are We on the Verge of a Major Crisis?

Despite the gloomy outlook, a full-blown financial crisis in the U.S. does not seem imminent. However, the likelihood of recurring smaller shocks—akin to aftershocks—is much higher. A relevant example is the 2022 UK crisis, where the government was forced to reverse its fiscal policy under market pressure. In such scenarios, gold is likely to benefit as investors seek alternative safe havens.

In this complex environment—dominated by geopolitical tensions and elevated interest rates—fiscal fears have emerged as a third and equally influential factor in gold pricing. While U.S. bonds remain a benchmark for safety, shifting investor sentiment and rising anxiety over American deficits may reshape the safe-haven landscape. In this context, gold continues to assert its place as a preferred asset during times of uncertainty and volatility.