Gold Pushes Higher with US Yield Curve as Debt Fears Worsen

GOLD and SILVER PRICES edged higher against a falling Dollar on Monday as government borrowing costs continued to rise in the bond market, with the US yield curve steepening further as concerns over long-term Western debt sustainability worsen, writes Atsuko Whitehouse at BullionVault.

Gold last Friday recorded its highest week-end level since May after the US Treasury had to pay the highest rate of interest since 2007 to raise $42 billion in an auction of 10-year bonds, followed by the highest rate since 2001 to raise $25 billion in new 30-year debt.

"We think long-term yields have more room to run," says $15 trillion ETF fund and asset management giant Blackrock.

"Investors demand more compensation for holding long-term government debt. Rising public borrowing, greater inflation uncertainty and more volatile bond markets have reinforced that trend."

With 2-year US Treasurys offering buyers 4.18% per annum in yield today, Washington's 20-year debt offered 5.28%, close to levels not seen since the US subprime mortgage crash morphed into the global credit crunch and then financial crisis of summer 2007.

That widening gap has seen the yield curve on US government debt steepening since the Federal Reserve's June policy meeting, as the market has demanded higher yields on longer-dated bonds versus shorter-term debt.

"The shape of the yield curve [is] one indicator for where fiscal distress is greatest," says says former chief FX strategist at Goldman Sachs and now Senior Fellow, Economic Studies at the Brookings think tank Robin Brooks, warning that compared to Japan and much of Western Europe, the USA is merely "the cleanest shirt in the laundry basket."

Spot prices for London bullion on Monday went up as much as 0.9% to $4416 per troy ounce in Asian trade overnight, before erasing most of the gain at $4385.

The US Dollar fell 0.3% on its trade-weighted DXY index to the lowest since early June, as the odds of a September rate rise from the Federal Reserve – priced at nearly a 60% chance one month ago – have now sunk below 1-in-3 following weaker-than-expected jobs, inflation and retail sales data.

Reuters reported last week that several strategists believe long-term yields will stay elevated thanks to heavy upcoming Treasury debt issuance, Washington's existing $40 trillion debt pile, plus the lack of a clear deficit-reduction plan,

With the US Treasury scheduled to raise $16 billion in new 20-year bonds this Wednesday, last week's US Treasury auctions "reignited fears" that increasingly expansionary US fiscal policy could ultimately drive investors away from government bonds towards rival 'safe havens' such as gold, according to London's City AM newspaper

Tracking gold today, the price of silver − nearly 60% of whose annual demand comes from industrial uses − rose 1.1% to $65.66 per ounce by London lunchtime before also edging back towards unchanged.

Copper also gained Monday, advancing towards a new record high as traders and analysts pointed to tightening physical supply and falling inventories for the key electrical and electronics metal, with the premium for cash copper deals over 3-month contracts widening significantly at the London Metal Exchange, signalling tight near-term availability.

Crude oil prices rose too, with Brent approaching $90 per barrel again as the 60-day period agreed by the US and Iran to reach a broader peace deal expired amid fresh threats and demands from both sides over the Strait of Hormuz.

Shipping through the key waterway slowed sharply over the weekend following recent attacks on tankers.

With the 20-2 yield spread now widening by 1/5th of a percentage point in 2 months, the current steepening in the US yield curve is less abrupt than that seen following President Trump's "Liberation Day" tariff announcement in April 2025, when the 20-year minus 2-year Treasury yield spread widened by as much as 39 basis points in a little over a week.

Gold initially fell during that episode before rebounding to trade almost 4% above its April 2 level just 10 days later.