Why gold and silver prices are on the decline as bond yields rise

Global bond yields have been spiking in recent months amid geopolitical tension and economic uncertainty, including in the U.S., and these forces are also pushing down the perceived value of precious metals like gold and silver.

Bonds are loan products offered by governments and companies and the yield, or return investors can expect from holding the bond, fluctuates regularly based on economic factors as well as supply and demand for those products. Bonds return their full value at maturity (like repaying a loan), plus regular interest payments to the owner of the bond as payment for borrowing the money.

The higher yield for U.S. bonds especially is making metal assets less attractive, an investing expert says.

“The people who believe that precious metals are a store of value are now looking at 10-year, 20-year or 30-year bonds as, ‘wait a second, instead of holding something that doesn’t pay me an interest rate, I can hold something that does pay me an interest rate, and it’s a relatively good interest rate,'” says Colin White, president and CEO of Verecan Capital Management.

The 10-year U.S. Treasury yield was at about 5.25 per cent as of publication, up nearly half a percentage point since last month, which is a relative increase of about 11 per cent.

At the same time, the price for gold on the December contract was hovering around US$4,164 per ounce, down more than eight per cent from a month ago. Silver on the December contract was about $61.55 an ounce, and also down about eight per cent from the same time last month.

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These current movements in prices may suggest that bonds are more attractive as an investment than gold and silver, and even some stocks.

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Traditionally, gold and other hard assets have been viewed by investors as a good option to park money and watch it grow in times of heightened financial risk. The theory here is that if a financial system or currency were to collapse, or if inflation was to spike out of control, then gold and similar hard assets would still hold most, if not all, of their value or more.

“We’ve had this huge run up to over $5,000 an ounce for gold, but now we’re down close to $4,000,” says White.

“That’s not behaving like a safe investment, that’s not behaving like a store of value or any kind of a safe thing, from what I would expect from something that is going to be a more consistent store of values.”

It isn’t always clear exactly why bond yields fluctuate, but a lot of the reason they rise has historically been tied to expectations about interest rates, inflation and risks from government spending.

The U.S. government has also reportedly spent over $25 billion so far on its war against Iran, as U.S. Defense Secretary Pete Hegseth said last month, and the war has no clear end in sight. At the same time, global oil prices have skyrocketed because the conflict has led to a near-complete closure of the Strait of Hormuz shipping channel, which the Bank of Canada warned could lead to higher inflation the longer it persists.

Higher inflation not only makes goods and services more expensive, but it can also force central banks to raise their benchmark interest rates to help bring inflation down, which means higher borrowing costs for many consumers and businesses.

Expectations of rate hikes from central banks can also influence bond yields.

The U.S. Federal Reserve raised interest rates earlier this month for the first time in three years.