A surge has been seen in gold prices to their highest level since April. The record high of $3,499 is being neared.
Gold (XAU) has been pushed to its highest level since April, with prospects for further gains. This has been attributed to a momentum gain by the often-overlooked factor of Treasury yield curve steepening. A boost could also be provided to Bitcoin (BTC) by this shift in the bond market.
An increase of more than 5% has been seen in the price of gold over the past ten days, bringing it to $3,480 per ounce. This puts it closer to the record high of $3,499 that was set on April 22, according to TradingView data.
A rally is being coincided with by a steepening U.S. Treasury yield curve, as the spread between 10-year and 2-year yields (10y2y) was widened to 61 basis points—the highest since January 2022. Meanwhile, a gap of 1.30% was reached between 30-year and 2-year yields, making it the widest since November 2021.
A faster decline in the 2-year yield has largely driven this steepening. The 2-year yield fell 33 basis points to 3.62% in August, which can be compared to the smaller 14-basis-point decline that was seen in the 10-year yield, which is now at 4.23%. In bond market terms, this is known as a “bull steepening,” where shorter-term bond prices are made to rise more sharply (yields fall) than longer-term ones. (Bond prices are moved in the opposite direction of yields.)
It was explained by Ole Hansen, Head of Commodity Strategy at Saxo Bank, that this dynamic is to be considered positive for gold.
For gold, the opportunity cost of holding non-yielding assets is eased by lower front-end yields. This shift is being considered particularly relevant for real asset managers, many of whom have either struggled or been restricted from allocating to gold while U.S. funding costs were elevated, according to an analysis note that was released by Hansen on Thursday.
It was explained by Hansen that a decline of 800 tons was seen in the total holdings of bullion-backed ETFs between 2022 and 2024. This was due to rates having been raised by the Fed to combat inflation, which sent short-duration yields higher.
Bitcoin and Gold Share Non-Yielding Asset Status as Store of Value
A comparison is often made between Bitcoin and gold as a store of value, and like gold, Bitcoin is considered a non-yielding asset. Neither interest nor dividends are generated by Bitcoin or gold; their value is primarily driven by scarcity, demand, and market perception. Therefore, the decline in the two-year yield could be considered a bullish development for BTC.
Meanwhile, expectations of sticky inflation and other factors are attributed with the relative resilience of longer-duration yields. These factors also support the bullish case in gold and BTC.
A note was provided to clients on Friday by analysts at ING, in which it was stated that the U.S. Treasury curve has unsurprisingly been steepened. It was explained that lower rates today risk having inflation inflamed further ahead, which is considered bad news for bonds.
It was explained by Hansen that much of the relative resilience in the 10-year yield is stemmed from inflation breakevens, which are currently at around 2.45%, and the rest is being represented by the real yield.
It is being signaled that greater compensation for fiscal risks and potential political interference with monetary policy is being demanded by investors. This environment is typically seen to support gold as both an inflation hedge and a safeguard against policy credibility concerns, as noted by Hansen.
The nominal yield is composed of two components. Firstly, the inflation breakeven is reflected, which shows the market’s expectation for average inflation over the bond’s maturity. Compensation for the loss of purchasing power due to inflation is provided by this portion of the yield. The second component is the real yield, which represents the additional compensation that is demanded by purchasers above and beyond inflation.
The Bullish Bond Market Indicator Flashing Red for Stocks
Historically, gold and gold miners have been considered among the best performers during prolonged periods of bull steepening in the yield curve, according to analysis that was conducted by Advisor Perspectives. Conversely, stocks are tended to be underperformed in these environments.
Overall, an intriguing position is found for Bitcoin, which is given its dual nature as an emerging technology that is often moved with the Nasdaq. At the same time, gold-like qualities as a store of value are also shared by it.
