The yield on the 30-year U.S. Treasury climbed to 5.337% this week — its highest level since 2007.
Normally, rising long-term yields are a headwind for gold. Higher yields make bonds more attractive compared with an asset that pays no interest.
This time, though, it is just as important to look at why yields are rising.
Investors are demanding more compensation to hold long-term U.S. debt at a time when Washington continues to run large deficits, the national debt keeps growing, and the cost of servicing that debt is becoming increasingly expensive.
That creates an interesting tension.
Higher yields can weigh on gold in the short term. But if they also reflect growing concern about the long-term U.S. fiscal outlook, the same development could support demand for physical gold as a store of value outside the government debt system.
That is why I don’t think watching the gold price alone is enough right now. The long end of the U.S. yield curve may tell us a lot about how the market really views the state of U.S. finances.
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