Steepening US yield curve and what it means for gold

Key Points:

• US 2–10-year Treasury spread steepens to near highest since 2022, primarily driven by falling front-end yields.
• Lower short-end rates reduce the cost of holding gold and support ETF demand.
• Rising long-end yields linked to fiscal and Fed independence concerns diminish Treasuries’ safe-haven role.
• For investment metals, the implications are nuanced but lean supportive.    

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The US 2–10-year Treasury spread trades around 60 basis points, approaching the steepest level on a daily close since January 2022. The move reflects a so-called “bull steepener,” where short-dated yields fall on rising expectations for rate cuts, while longer-dated yields struggle follow suit amid mounting concerns about Federal Reserve independence, inflation risks, and a rising US debt pile. For investment metals, the implications are nuanced but lean supportive.

For gold, lower front-end yields ease the opportunity cost of holding non-yielding assets. This shift is particularly relevant for real asset managers, many of whom have struggled—or in some cases been restricted—from allocating to gold while US funding costs were elevated. It helps to explain why total holdings in bullion-backed ETFs—despite a central-bank-led gold rally—saw an 800-ton decline between 2022 and 2024, a period when US funding rates and real yields surged as the Federal Reserve stepped up its battle against inflation. Together with a general supportive backdrop for bullion and traders now bringing forward additional rate cut expectations, the prospect of lower funding costs is once again underpinning demand gold, especially via ETFs.

Meanwhile, 10-year yields have not reflected the prospect of incoming rate cuts, instead holding above support near 4.2% and complicating an otherwise bullion-supportive backdrop. Much of the nominal yield is explained by inflation breakevens, currently around 2.45%, while the balance—the real yield—signals that investors are demanding greater compensation for fiscal risks and potential political interference with monetary policy. This environment typically supports gold as both an inflation hedge and a safeguard against policy credibility concerns. Silver, with its dual role as a monetary and industrial metal, tends to benefit as well, particularly if inflation worries translate into stronger demand for hard assets.

Historically, the correlation between real yields and gold prices has been strongly negative, as real yields—adjusted for inflation to reflect the true return—have tended to move opposite to gold. Since 2022, however, this relationship has been challenged, with periods where both rose in tandem. Four key factors explain this divergence: elevated geopolitical risks, global economic uncertainty, fiscal concerns, and record central-bank demand aimed at hedging the first three while reducing dollar dependency.

With this in mind, rising long-end yields—even when driven by higher real yields—can still be supportive for gold when they reflect concerns such as Fed stability and a rising debt-to-GDP ratio. These factors reduce the ability of long-dated Treasuries to act as a safe haven, thereby increasing gold’s attractiveness as an alternative hedge.

The net effect of the current curve dynamics is broadly positive for investment metals. Rate-cut expectations at the short end create a tailwind, while long-end term premium linked to inflation worries and financial stability concerns strengthens the hedge argument. However, while the negative correlation between gold and real yields has faded, investors should still monitor real 10-year yields closely and assess the drivers behind their prevailing levels and direction.

What to watch

• Friday's US PCE inflation report: The Fed’s preferred inflation gauge is expected to show annual growth of around 2.6% for headline and 2.9% for core. The key uncertainty is whether tariff-driven pressures will prove temporary or signal a more entrenched upward trend.
• Trump vs. Cook at the Fed: The battle over Governor Lisa Cook’s position underscores political risk around central bank independence. Any erosion of Fed credibility could raise risk premia and support demand for gold and silver.
• US government bond auctions: Rising issuance means investor appetite for long-dated Treasuries will be critical. Weak demand would pressure yields higher, further reinforcing gold’s appeal as Treasuries lose safe-haven status