The global bond selloff is sending a simple but important message: borrowing money is getting more expensive and a rising rate environment is here to stay, at least for the short term.
Government bond yields have climbed across major economies, with Germany’s 10-year yield reaching its highest level since 2011, Japan’s 10-year yield holding above 3%, U.S. 10-year Treasury yields touching their highest since November 2023 and U.K. gilt yields reaching a post-2008 high, as quoted on CNBC.
The latest selloff is being fueled by a combination of heavy government debt issuance, renewed inflation concerns following higher oil prices and expectations that central banks may keep interest rates higher for longer.
Normally, that would not be great news for gold. Higher yields increase the opportunity cost of holding a non-yielding asset like gold.
Yet, gold is doing exactly what investors might not expect. Gold bullion ETF SPDR Gold Trust GLD rallied 1.5% on Sept. 2, 2026. The ETF has gained 8.4% over the past month (as of Sept. 2, 2026).
Now, let us find out what is going on.
Bond Rout Raises Bigger Fiscal Concerns
The bond selloff this time is about more than just interest rates.
Governments around the world are carrying large debt burdens and need to refinance maturing debt. When yields rise, that refinancing becomes more expensive, pushing up interest costs and putting additional pressure on already stretched government budgets.
According to the Congressional Budget Office, the fiscal 2026 federal budget deficit is projected at $1.9 trillion, or 5.8% of GDP, up from $1.8 trillion in fiscal 2025. CBO projects the deficit to rise to $3.1 trillion, or 6.7% of GDP, by 2036, with rising interest costs acting as a major contributor.
A widening U.S. fiscal deficit is a negative for the U.S. dollar if debt sustainability becomes concerning. At the same time, higher Treasury yields resulting from increased borrowing can provide short-term support to the greenback.
Overall, the bigger picture is that investors are beginning to question how sustainable high levels of government borrowing are if interest rates remain elevated for years.
That is where gold can come into the picture.
Gold carries no credit risk and is not anyone else's liability. When investors become increasingly concerned about government finances, currency stability or the long-term value of fiat money, the metal can become more attractive as a store of value.
Central Banks Are Turning to Gold
One of the biggest reasons gold could remain resilient despite higher rates is central-bank demand.
The Dutch central bank recently moved about 86 metric tons of gold from vaults in the United States and Canada to the U.K. The move was aimed at improving the tradability of its reserves and strengthening crisis preparedness, as mentioned in CNBC.
DNB said that gold stored in London can be accessed and traded more easily because it meets international trading standards. The Bank of France also previously moved 129 metric tons of gold held at the New York Federal Reserve to France.
Central banks have been placing greater emphasis on gold as part of their reserve strategies. They have increased gold purchases since 2022, when G7 nations froze Russian central bank assets following the invasion of Ukraine, per Goldman Sachs.
Goldman Sachs Research also expects central banks to buy an average of 50 tonnes of gold per month in 2026, up from an average of 17 tons per month before 2022.
That demand can provide an important source of support for prices, particularly when other investors are worried about currencies, sovereign debt or geopolitical risks.
Goldman Sachs Research forecasts the precious metal will rise to $4,900 per troy ounce by the end of 2026.
Here's Why Gold Can Rise Even When Rates Are High
Rising bond yields are partly reflecting inflation concerns. The latest oil-price shock, led by heightened Middle East tensions, has reignited fears that inflation could remain sticky.
Gold is often viewed as a hedge against inflation and loss of purchasing power. If investors believe that inflation will remain elevated for longer, they may continue adding gold even as interest rates rise.
There is also the issue of real versus nominal yields. If bond yields rise but inflation expectations rise as well, the increase in real yields may be much smaller than the headline move in Treasury yields suggests. That can reduce the pressure on gold.
Then come geopolitical risks.
Geopolitical Tensions Add Another Layer of Support
The ongoing U.S.-Iran tensions and uncertainty surrounding the strategically important Strait of Hormuz are keeping investors on edge. Gold often acts as a safe-haven asset.
Reserve Diversification: A Long-Term Tailwind
For decades, U.S. dollar assets and Treasuries have been central to global reserve management. But concerns about geopolitical fragmentation, sovereign debt, inflation and currency risks are encouraging some central banks to reassess how their reserves are positioned.
Gold offers something Treasuries cannot: it is not backed by another government's promise to repay.
Gold officially overtook U.S. Treasuries as a share of global reserves. Gold's share of total official reserve assets rose to 27% at the end of 2025, while U.S. Treasuries fell to 22% from 25%, as mentioned in the Financial Post.
Gold to Hit $20,000?
Kevin Smith, founder and CEO of Crescat Capital, believes that expanding global money supply, large fiscal deficits and rising debt will keep supporting the precious metal as central banks increasingly turn to gold. Crescat sets a $20,000-an-ounce gold price target in approximately four years, as quoted on Kitco.
Bottom Line
Higher rates do not automatically mean lower gold prices. If inflation, geopolitical tensions, fiscal concerns and central-bank demand remain strong, gold could continue to shine even as bond yields climb. Against this backdrop, investors can keep a close track of ETFs like GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM, iShares Gold Trust Micro IAUM, VanEck Gold Miners ETF GDX and VanEck Merk Gold Trust OUNZ.
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This article originally published on Zacks Investment Research (zacks.com).
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