Gold Rises as Yields Retreat and Sovereign Debt Worries Revive Safe-Haven Demand

The U.S. 10-year Treasury yield edged lower after reaching a more than two-decade high on Monday. Lower yields reduce the opportunity cost of holding gold, which does not generate interest, making bullion relatively more attractive than interest-bearing assets. The pause in the bond-market sell-off therefore helped gold recover after recent pressure from elevated yields.

The dollar also weakened from a one-year high, providing additional support. Because gold is priced in dollars, a weaker U.S. currency makes bullion less expensive for buyers using other currencies, potentially improving international demand.

Concerns about government finances contributed to the demand for safe-haven assets. Rising government debt and widening budget deficits across parts of the euro zone, particularly France, have put pressure on sovereign bond markets. Investors are also increasingly concerned about the U.S. Treasury market. Such uncertainty can encourage investors to seek alternatives to government bonds and currencies, supporting demand for gold.

Monetary-policy expectations remain an important counterweight. Following weaker-than-expected U.S. employment growth in September, markets reduced the probability of a Federal Reserve rate hike in October to 22%, although the probability of an increase in December remained at 84%. Higher expected interest rates would increase the opportunity cost of holding gold, potentially limiting further gains.

Oil prices fell as resilient Middle Eastern crude exports and the release of emergency stockpiles by G7 countries eased concerns about supply disruptions. Lower oil prices could reduce energy-driven inflation pressure and, in turn, lessen the need for further monetary tightening.

Looking further ahead, TD Securities maintained its expectation that gold could rise above $5,000 per troy ounce in 2027. The bank cited continued exchange-traded fund buying and demand from discretionary investors as sources of support, despite near-term market headwinds.