GOLD1. Gold and 10-Year Bond Yield
Gold and 10-year Treasury yields generally exhibit a strong inverse correlation. When bond yields rise, gold prices tend to fall, and vice versa.
This is primarily because higher yields increase the opportunity cost of holding gold, which does not pay interest or dividends. Investors prefer bonds when yields rise, reducing gold demand.
However, the key driver for gold is real interest rates (nominal yield minus inflation). Even if nominal yields rise, if inflation rises faster, real yields can remain low or negative, which supports gold prices.
Historical data shows gold often rises during periods of falling real yields, even if nominal yields fluctuate. For example, gold surged in the 1970s despite rising nominal rates due to high inflation and negative real yields.
2. Gold and Dollar Index (DXY)
Gold and the US dollar index (DXY) usually have an inverse relationship.
A stronger dollar makes gold more expensive in other currencies, reducing demand and lowering prices. Conversely, a weaker dollar supports gold by making it cheaper internationally.
However, during times of geopolitical uncertainty or market stress, both gold and the dollar can rise together as safe havens.
3. Interest Rates and Gold
Central bank interest rates influence bond yields and the dollar, indirectly affecting gold.
Rising interest rates tend to push bond yields higher and strengthen the dollar, both of which typically pressure gold prices.
Conversely, expectations of rate cuts or dovish monetary policy lower yields and weaken the dollar, supporting gold.
The real interest rate is the most important factor: low or negative real rates reduce the opportunity cost of holding gold, boosting its appeal.
4. Summary of Interactions
Factor Relationship with Gold Explanation
10-Year Bond Yield Inverse Higher yields raise opportunity cost, reducing gold demand
Real Interest Rate Inverse Negative or low real rates support gold
Dollar Index (DXY) Inverse Strong dollar makes gold more expensive globally
Nominal Interest Rate Inverse Higher rates strengthen dollar and yields, pressuring gold
Conclusion
Gold prices are strongly influenced by the interplay of real interest rates, bond yields, and the US dollar. Rising nominal yields and a strong dollar generally weigh on gold, but if inflation outpaces yields, resulting in low or negative real rates, gold remains attractive as a hedge. This dynamic explains gold’s resilience despite fluctuating bond yields and dollar strength in 2025.
