Why can gold prices rise despite higher real yields?

Gold pays no interest, it pays no coupon and no dividend. So, when bonds offer investors a better return after inflation, holding gold becomes harder to justify: the opportunity cost of holding non-interest bearing gold becomes too elevated to justify holding it.

Then came 2022. Real yields surged, but gold proved far more resilient than the old relationship suggested in the longer horizon. Over the following years, higher yields failed to prevent a powerful rally.

What changed? And should investors still watch yields when deciding whether to buy—or sell—gold?

The key word is real.

A nominal bond yield tells you what a bond pays before accounting for inflation. A real yield measures the return after inflation. For gold investors, the US 10-year inflation-protected Treasury yield is a commonly used benchmark.

The distinction between nominal and real yields matters. A bond paying 4% looks attractive until inflation eats up most of that return. If investors can earn a meaningful return above inflation, however, gold faces stronger competition. All else being equal, the bond becomes more appealing when real yields rise. When that happens, the interest you give up by holding gold—its opportunity cost—increases.

When real yields fall, the reverse happens. Investors sacrifice less income by holding gold, making its lack of a coupon less of a disadvantage.

This regression compares gold prices with the US 10-year real yield. 

• Grey dots represent observations from January 2003 to February 2022
• red dots cover the period from March 2022 onwards.

PS: The gold-price axis uses a logarithmic scale: equal vertical distances represent equal percentage changes, rather than equal dollar changes. 

The focus is on how gold behaves at different levels of real yields.

• The grey dots illustrate the familiar relationship: lower real yields generally went hand in hand with higher gold prices, and higher real yields with lower prices.
• The red dots tell a different story. Since March 2022, gold has traded at substantially higher prices than the earlier relationship would suggest—even with real yields firmly positive.

The chart does not tell us why that premium emerged, or mean that gold now rises whenever yields rise but it shows that the longer-term relationship has shifted.

Yields still influence short-term moves, but other sources of demand have become strong enough to offset their headwind.

Two developments around February and March 2022 pulled gold in different directions.

• The Federal Reserve began raising interest rates in March, starting a tightening cycle that would push real yields sharply higher. That created a familiar headwind for gold.
• Russia’s invasion of Ukraine in February prompted Western governments to immobilise Russian central-bank reserves.

The sanctions highlighted a risk that reserve managers could no longer ignore: foreign assets might remain financially sound while becoming politically inaccessible.

For a government worried about sanctions, a Treasury bond’s yield suddenly became only part of the calculation. Being able to access to the asset mattered, too.

In this context, gold held directly in domestic vaults offers a different proposition. It is no other government’s liability, holding it does not depend on another country honouring a debt contract and no one can revise its value to 0.

That doesn’t make gold immune to every restriction: storage location and the ability to transact still matter. But today, geopolitical risks encourage reserve managers to hold more of it.

Research published by the IMF found that financial sanctions were associated with an increase in the share of central-bank reserves held in gold. Reserve diversification was already under way before 2022; the Russian sanctions gave the issue renewed urgency.

A trader buying gold ahead of a Federal Reserve (Fed) meeting and a central bank diversifying its reserves are making very different decisions, as they are looking for different characteristics, different purposes.

• The trader is looking for return. Therefore, he/she may sell gold holdings if real yields rise or the dollar strengthens.
• A central bank, on the other hand, is looking for a reliable and stable reserve of value. It would therefore continue buying if its objective is to reduce exposure to foreign currencies and geopolitical risks over many years.

Central-bank demand has been substantial. In the second quarter of 2026, net purchases reached approximately 289 tonnes, according to the World Gold Council—a record for a second quarter.

Note that buying rebounded from a weak first quarter, and total first-half purchases were the lowest since 2022. But in Q2, central banks bought into a falling market and rising real yields, confirming that some buyers have reasons to own gold that a higher bond yield alone will not reverse.

Investors also need to ask why yields are rising.

• If real yields increase because growth is healthy and confidence in monetary policy is strong, interest-bearing assets become more competitive. That can weigh on gold.
• But if investors demand higher yields because they are worried about fiscal deficits, government borrowing or the credibility of economic policy, the message becomes more complicated.

A higher coupon offers compensation but it does not necessarily remove the concern that made investors demand that compensation in the first place.

This is where the so-called debasement trade enters the discussion – the debasement standing for the weakened appetite for US Treasuries and US yields due to questionable geopolitical and fiscal policies.

And this ‘debasement’ demand extends beyond central banks: even price-sensitive investors may turn to gold when confidence in US Treasuries and the dollar weakens. Higher yields may offer more income, but they do not necessarily restore appetite for the underlying debt—or the currency in which it is denominated. In that environment, gold can attract buyers despite the higher opportunity cost of holding it.

The World Gold Council noted that the sharp rise in real yields and the stronger dollar failed to produce the steep decline its traditional relationship would have suggested in 2022. Yet gold still suffered periods of selling pressure during that year. Resilience over a longer horizon did not eliminate shorter-term sensitivity.

The same tension remains visible today. In the second quarter of 2026, gold ETFs experienced net outflows as interest-rate expectations shifted higher and the dollar strengthened, even while central banks increased their purchases.

The latter tells that rising real yields and a stronger dollar can still trigger a correction, and falling yields and a weaker dollar can still support a rebound. But those moves take place alongside demand driven by reserve diversification, geopolitical uncertainty and concerns about fiscal sustainability.

The traditional relationship remains useful but it has become less sufficient on its own.

The longer-term case for gold would weaken if the forces supporting that additional demand began to fade. That would mean greater confidence in public finances, a more predictable geopolitical environment and less concern about access to foreign reserves could reduce the incentive to diversify into gold. A sustained slowdown in central-bank buying would also deserve attention.

Until then, the long term outlook for gold remains comfortably bullish.

Of course, conviction should leave room for corrections: central-bank demand can cushion a decline without preventing one, and a strong structural story does not make every entry price attractive.

How do real yields affect gold prices?

Higher real yields increase the opportunity cost of holding gold, which pays no interest or dividends. This typically puts pressure on gold prices. Lower real yields tend to make gold more attractive, although other factors can outweigh this relationship.

Why can gold prices rise when real yields are rising?

Gold can rise alongside real yields when demand driven by central-bank purchases, geopolitical uncertainty or concerns about currencies and government debt outweighs the appeal of interest-bearing assets. The reason yields are rising also matters.

What changed in the relationship between gold and real yields after 2022?

Gold proved more resilient than its earlier relationship with real yields would have suggested. Increased central-bank demand and greater attention to geopolitical risks helped support prices. This does not mean the relationship has disappeared or that gold will always withstand higher yields.

Why do central banks buy gold?

Central banks hold gold to diversify reserves and reduce reliance on foreign currencies and other governments’ debt. Physical gold is not an issuer’s liability. Holding it domestically can also reduce exposure to the risk of foreign reserves being frozen, although storage and transaction risks remain.

What is the gold debasement trade?

The gold debasement trade involves buying gold because of concerns that currencies will lose purchasing power over time. These concerns may stem from inflation, monetary expansion or weakening confidence in fiscal and monetary policy. Gold has no issuing government, but it is not a guaranteed hedge against inflation over every period.

Can gold prices fall despite strong central-bank buying?

Yes. Central-bank purchases are only one source of demand. Higher real yields, a stronger US dollar, investment outflows or profit-taking can outweigh that support. Strong long-term demand does not prevent corrections or make every purchase price attractive.

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