Rise in global bond yields and its effects on the gold market
While rising bond interest rates and high public borrowing affect gold prices, analysts are focusing on the source of the interest rate hikes.
The rapid rise in bond yields and U.S. Treasury yields hovering at record levels continue to exert pressure on gold prices. However, these developments in the markets are raising questions about the traditional impact of the reasons behind the interest rate hikes on gold.
Latest Situation in Gold Prices
While the price of an ounce of gold fell to 4,111 dollars, hitting a 2-month low, the weekly loss exceeded 3.4 percent.
Gram gold, which started the week at the level of 6,740 Turkish Liras, realized its weekly close at 6,542 Turkish Liras.
Global Bond Markets
U.S. bond yields hovering at record levels are among the fundamental factors strengthening gold sales.
The IMF announced that global bond markets continue to function in an orderly manner, attempting to put an end to discussions regarding the risks created by rising yields.
Borrowing in Major Economies
Rising inflation and public borrowing draw attention in major economies such as the UK, France, and Germany.
Concerns regarding fiscal balances are among the primary factors continuing to drive long-term bond yields upward in these countries.
Bond Yield and Gold Balance
Under normal conditions, an increase in bond yields creates pressure by raising the opportunity cost of holding gold, which offers no interest yield.
However, when the rise in interest rates stems from concerns regarding governments' borrowing capacity, the classical economic equation changes.
The Distinctive Nature of Gold
Gold is not dependent on any state's ability to pay its debt and carries no public deficit or refinancing obligation.
In this environment where governments pay higher interest to borrow, this characteristic of gold is seen as more important by investors.
Future Period Expectations
In the subsequent process, the markets will closely monitor not only the level of bond yields but also the primary source behind this increase.
If concerns regarding fiscal balances weigh heavily behind the rise, the power of high interest rates to drag gold down may remain limited.