A Perfect Correlation—Until It Wasn’t
For nearly two decades, gold prices and bond yields maintained a reliable inverse correlation: when yields increased, gold prices fell, and when yields decreased, gold prices rose. However, starting in 2022, this long-standing pattern diverged significantly.
Data visualizations from Michael Arouet (see the image above) illustrate that, until 2022, the inverted bond yield chart mirrored gold price movements almost perfectly. After that point, the relationship changed dramatically. Even as yields rose, gold prices continued to increase or remain stable, breaking the 17-year trend.
The Ukraine Factor
The most likely cause of this decoupling is geopolitical events. The Russia–Ukraine war and the subsequent confiscation of Russian assets by the West marked a turning point. These developments prompted central banks around the world to begin accumulating gold at an unprecedented rate, likely as a hedge against similar risks in the future.
Central Banks and the Gold Rush
Historically, rising yields made bonds a more attractive investment than gold, as gold does not provide interest or dividends. However, with central banks now hoarding gold, price movements are no longer reacting to interest rate changes or traditional valuation models. The old rules seem to be losing their relevance.
Bonds Losing Their Shine
Another factor contributing to this shift is the declining credibility of sovereign bonds. As concerns about credit ratings for instruments like U.S. Treasuries grow, investors are starting to view bonds as less reliable than before. This perception adds to the appeal of gold as a long-term store of value.
A New Market Reality
What we are witnessing might be a broader structural shift in global markets. Traditional correlations and relationships are no longer guaranteed to hold. The investment world may be entering a new paradigm in which central bank actions and geopolitical risks play a much larger role in driving asset prices.
Have you noticed other historical market patterns breaking down recently? Share your thoughts in the comments below! If you found this blog insightful, don’t forget to SHARE it with your friends!
