Gold has experienced a significant surge, reaching its highest point since April, driven by a notable steepening of the U.S. Treasury yield curve. This trend in the bond market may also favor bitcoin, which has recently been valued at $110,594.12. Over the past ten days, gold prices have risen over 5%, now trading at approximately $3,480 per ounce, just shy of the record high of $3,499 achieved on April 22, according to TradingView data.
The rise in gold prices is closely linked to a steepening yield curve, marked by an increase in the spread between 10-year and 2-year Treasury yields, which recently reached 61 basis points—the highest level since January 2022. Additionally, the disparity between 30-year and 2-year yields has widened to 1.30%, the largest since November 2021. This steepening phenomenon is primarily attributed to a significant decline in the 2-year yield, which fell by 33 basis points to 3.62% in August. In contrast, the 10-year yield saw a smaller decrease of just 14 basis points, now standing at 4.23%. This scenario is characterized as a “bull steepening,” where shorter-term bond yields decrease more sharply than those of longer-term bonds, an occurrence that benefits the price of gold.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted that this dynamic positively influences gold’s attractiveness. He explained that lower short-term yields lessen the opportunity cost associated with holding non-yielding assets like gold, making it particularly appealing for real asset managers who have faced challenges in allocating to gold amid rising U.S. funding costs in previous years. Hansen highlighted that bullion-backed ETFs saw a significant reduction in holdings, declining by 800 tons from 2022 to 2024 as the Federal Reserve increased rates to combat inflation, consequently raising short-duration yields.
Bitcoin, often likened to gold as a store of value, shares the characteristic of being a non-yielding asset. Both gold and bitcoin do not generate interest or dividends; their value is instead driven by scarcity, demand, and market perception. As such, the drop in the two-year yield may indicate a bullish outlook for bitcoin.
Expectations of persistent inflation contribute to the resilience of longer-term yields, further supporting the bullish narratives surrounding both gold and bitcoin. Analysts at ING remarked that the steepening of the U.S. Treasury curve suggests that lower rates today could exacerbate inflationary pressures in the future, which would be unfavorable for bonds. Hansen elaborated on the resilience of the 10-year yield, attributing it to inflation breakevens, currently around 2.45%, while the remainder accounts for the real yield, which indicates that investors are seeking higher compensation for fiscal risks and potential political interference with monetary policy.
The nominal yield comprises two key components: inflation breakevens, reflecting expectations for future inflation, and real yields, which offer additional compensation beyond inflation. Historically, environments characterized by bull steepening have led to strong performances for gold and gold mining stocks, while stocks typically struggle during these periods.
As for bitcoin, it occupies a unique position due to its dual nature as a cutting-edge technology that often mirrors movements in the Nasdaq, while simultaneously retaining gold-like properties as a reliable store of value. The current market dynamics present an intriguing scenario for both gold and bitcoin as they navigate the implications of changing interest rates and inflation expectations.
