Gold’s investment case has fundamentally changed, and rising yields are no longer a dealbreaker - FTSE Russell’s De

In an interview with Kitco News, Indrani De, Head of Global Investment Research at FTSE Russell, said both nominal and real yields are moving higher, which traditionally increases the opportunity cost of holding a non-yielding asset like gold. However, she said the gold market has undergone a fundamental shift as central banks have become increasingly important buyers.

De explained the growing influence of central-bank demand is a significant reason why gold has become somewhat less sensitive to rising real yields. She noted that central banks were net sellers of gold from 2000 until the Global Financial Crisis, before becoming net buyers. More recently, the pace of purchases has accelerated substantially.

“ The extent to which central banks are buying gold today, in the last two, three years, is more than twice the level of what it was between 2010 and 2021,” she said.

She added that this demand matters because official-sector buyers generally aren't making allocation decisions based on the opportunity cost created by higher bond yields.

“We now have a huge chunk of demand for gold coming in from sources that are not sensitive to yields,” she said. “That is one very big reason why you see much more of a decoupling between the rising yields and gold prices.”

That shift is also showing up in global reserve allocations. De said that at current valuations, central banks collectively hold more gold than U.S. Treasuries. At the same time, she noted that the U.S. dollar's share of global foreign-exchange reserves has been on a structural downtrend, falling from just above 70% around the turn of the century to between 55% and 57% today.

However, De pushed back against the idea that this trend means central banks are simply losing faith in the U.S. dollar.(Kitco Global Index shows how much of today's gold move is the dollar versus the gold market itself.)

She said the dollar's dominant role remains largely unquestioned because there is no viable alternative of comparable scale. Instead, she characterized the trend as a gradual diversification of reserves amid a changing geopolitical and economic landscape.

De also expects official-sector gold demand to remain an important feature of the market. Although purchases could retreat from the exceptionally high levels of recent years, she said demand is geographically broad, including central banks across Asia and Latin America, while heightened geopolitical uncertainty is unlikely to disappear anytime soon.

At the same time, central banks are no longer the only important source of demand. De said investment demand through retail investors and gold-backed exchange-traded products has also increased, giving the market a broader base of buyers.

Gold, she added, continues to function as an inflation and geopolitical-risk hedge and offers another potential advantage as concerns surrounding currency debasement grow.

“Gold has the stability to it also,” she said. “Gold has many strengths which counter the headwinds from rising yields.”

While higher yields remain a risk for gold, De said investors also need to understand why yields are rising. Fiscal concerns across developed economies are one factor, with De describing the current environment as one of growing “fiscal dominance,” where fiscal policy increasingly overpowers monetary policy.

But not all of the rise in yields is necessarily negative for gold.

De said the global economy is moving away from the post-financial-crisis era of abundant cheap capital. Capital is becoming scarcer because there are increasingly productive uses for it, including artificial intelligence, infrastructure investment, reshoring and the global green energy transition.

She said this repricing of capital can ultimately support stronger productivity, while higher borrowing costs also put pressure on less productive “zombie companies.”

“There are a lot of good reasons why yields are increasing, and we need to be cognizant of that too,” she said.

That changing investment landscape is also creating opportunities beyond gold.

De said strength in currencies tied to major commodity-producing economies — including the Norwegian krone and Australian dollar, as well as the Brazilian real and Mexican peso — is another indication that commodities have an increasingly important role in global markets.

Copper is particularly well positioned within those structural trends. Traditionally viewed as a barometer of global economic activity because of its widespread industrial use, the metal is now benefiting from additional demand tied to AI infrastructure and the energy transition.

“We are in a world where commodities have a big role to play, because it's not just gold,” De said. “You have copper.”

The energy transition could provide another long-term source of commodity demand. De said the disruption in global energy markets has reinforced the connection between energy security and economic security. She noted that refined petroleum products have experienced even greater price pressures than crude oil, highlighting the risks of relying heavily on individual energy sources and vulnerable supply chains.

She said growth in electric vehicles and batteries globally suggests the green transition has actually accelerated this year, rather than stalled.

“The more diversified you are in your energy security, the better off you are,” she said, adding that the transition has “picked up pace this year.”

Ultimately, De said the investment environment is becoming less about choosing between traditional “risk-on” and “risk-off” positions and more about building portfolios capable of participating in growth while protecting against increasingly complex risks.

She noted that capital flows during the past three to six months show investors pursuing something of a barbell strategy: maintaining exposure to U.S. and global equities and the AI growth story while simultaneously buying high-quality, short- and intermediate-duration investment-grade fixed income for capital preservation and liquidity.

“We are certainly in a world where diversification is having more than its normal share of benefits,” De said. “Diversification is really paying off at this particular point in time.”

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