Get your free personalized podcast brief
We scan new podcasts and send you the top 5 insights daily.
Gold's strength despite rising real yields is unusual because its negative correlation has weakened significantly. This is attributed to new, sustained ETF inflows from long-term retail investors who view gold as a portfolio diversifier, breaking from the historical pattern of rates-driven institutional flows.
Related Insights
Despite short-term price choppiness driven by headline reactions and liquidity issues, the core conviction in gold comes from a simple structural imbalance. Fundamentally, demand is outpacing supply, making it a clean expression of investor preference for real assets.
The sustained rise in gold prices is primarily due to strategic, long-term buying by central banks, not short-term speculation. Goldman Sachs sees significant further upside potential, which is not yet priced in, from large private institutions like pension funds and sovereign wealth funds eventually adding gold as a strategic asset.
Recent gold sales by central banks to defend their currencies are undermining the long-term structural bull case that relied on consistent official sector buying. This shifts the burden of demand to investors, making gold's price more conditional on macro sentiment and ETF flows rather than steady central bank purchases.
Despite recent price volatility, the firm maintains a bullish outlook on gold. They believe fundamental drivers, including 800 tons of expected central bank purchasing and 580 tons of ETF inflows for the year, are strong enough to push prices to new highs, making dips an attractive entry point.
Gold's historic link to US real yields broke after the US froze Russian reserves. This forced global central banks to reassess risk and buy gold regardless of price, creating a powerful new source of demand and structurally altering the market, a change now being followed by sovereign wealth funds.
Gold's price de-correlated from real yields in 2022-2025 because strong structural demand from central banks and retail investors overshadowed rate-sensitive ETF flows. Recently, as this structural demand has softened, marginal pricing power has reverted to rate-sensitive ETFs, re-establishing the traditional link to yields.
Despite recent corrections caused by rising real rates and a strong dollar, the long-term bull case for gold remains intact. The fundamental driver is the ongoing reallocation of reserves by global central banks away from the U.S. dollar and into gold bullion. This multi-decade trend has not yet run its course.
Typically, gold doesn't perform well during hiking cycles. However, the current environment is different. With inflation expected to rise and a Federal Reserve that appears politically constrained from hiking rates, real rates will fall. This "run it hot" policy creates a perfect storm for gold to appreciate significantly.
After initially selling off with other assets due to broad de-risking for liquidity, gold is beginning to reassert its safe-haven status. It has started rallying even as equities fall, suggesting the initial wave of forced selling has subsided, allowing its traditional negative correlation with risk assets to return.
Years before recent inflation, State Street advocated for gold. The rationale wasn't primarily currency debasement, but because ultra-low interest rates meant bonds offered neither income nor diversification. Gold was seen as a necessary portfolio diversifier in an environment where fixed income was failing its historic role.
