"I Was Expecting a Drop, but It's Rising"... The Secret Behind Unyielding Gold Prices Despite Climbing Interest Rates [Weekend Money]

Long-term Yields Rise and Dollar Weakens on Fiscal Concerns

Central Bank Buying Provides Downside Support

Spot Gold and Gold Mining Companies in Focus

Yonhap News

Rising interest rates usually put downward pressure on gold prices, since gold does not yield any interest. When bond yields rise, the incentive to hold gold diminishes. However, the market has recently been experiencing a different phenomenon: even as long-term U.S. bond yields increase, gold prices are also climbing.

In a recent report, Yuanta Securities analyzed that "It is not the absolute level of interest rates, but the reason for their rise, that determines the direction of gold prices." If interest rates rise due to growth expectations, it puts pressure on gold. On the other hand, if the rise stems from fiscal instability, the dynamic changes.

Last year's gold rally was rooted in doubts about the U.S. dollar. As U.S. President Donald Trump's tariff policies raised questions about the dollar's status as the world's reserve currency—and anticipation grew for a Federal Reserve interest rate cut cycle—gold prices surged.

This year, the trend was different for a time. After the war between the U.S. and Iran, oil prices soared and concerns over inflation intensified, leading to higher interest rates. During this five-month period of adjustment, gold prices declined. In other words, rising rates driven by inflationary pressures did not favor gold.

Recently, however, the trend has shifted again. Gold prices have continued rising even as the 30-year U.S. Treasury yield surpassed 5.3% per annum. With long-term interest rates climbing in major economies such as the United States, Japan, Germany, and France, the market is increasingly focused on global fiscal burdens rather than simple economic recovery. Ko Kyungbeom, a researcher at Yuanta Securities, commented, "The perception is strengthening that the reasons behind the interest rate hikes are not economic improvement, but uncertainty about fiscal soundness, increased supply of long-term bonds, and a rise in term premiums."

Central bank purchases have also become a driving force supporting gold prices. As the trend toward reducing reliance on U.S. dollar assets continues, central banks' gold buying is emerging as a source of structural demand. Capital is also flowing back into global gold exchange-traded funds (ETFs).

Yuanta Securities emphasized the importance of paying attention not only to spot gold but also to gold mining companies. Ko explained, "Gold mining companies incur high fixed costs, so their margins expand rapidly as gold prices rise. About 99% of the world's gold production operates at a lower cost level relative to current gold prices, meaning that even if prices adjust, most gold miners should remain profitable."

This content was produced with the assistance of AI translation services.