Gold rallies as investors re-evaluate U.S. Treasurys and dollar

Gold prices have been on a tear with the recent trade turmoil driving investors to the safe haven, while competing assets such as the U.S. Treasurys and the dollar have tumbled. 

This is tied to the seismic shift in U.S. trade policy under President Donald Trump, and bullion has “stepped into the void” as the market’s safe haven asset of choice, Commonwealth Bank of Australia’s director of mining and energy commodities research, Vivek Dhar, said. 

“What makes this recent flight to safe‑haven demand so unique is that the U.S. dollar and Treasuries have been sold‑off as safe‑haven appeal of these U.S. assets has declined,” Dhar added. 

Gold prices have been scaling fresh highs and hit $3,500 per ounce on Tuesday, with more analysts forecasting that prices will rally further. J.P. Morgan expects the yellow metal to average $3,675 per ounce by the fourth quarter of 2025, and reach $4,000 by the second quarter of 2026.

Conversely, U.S. Treasurys have seen a sell-off in recent weeks, with the 30-year yield hitting the highest since November 2023 earlier this month. Meanwhile the U.S. dollar index has been sliding, and has weakened 8% so far this year, data from LSEG showed.

While the 30-year Treasury yield has gained just about 2 basis points so far this year, the spike within a week after Trump announced reciprocal tariffs was over 30 basis points — the benchmark 10-year yield also spiked by 30 basis points. Meanwhile, spot gold prices have risen 25% so far this year, according to LSEG data.

While yields on long-dated U.S. Treasury yields have come down from the highs hit earlier this month and the dollar has strengthened marginally as Trump backtracked on comments he made about firing Federal Reserve Chair Jerome Powell, U.S. assets’ standing among investors has already taken a hit.

“Although this is far from a ‘Death of the U.S. Dollar’ story, it is fair to say that confidence in the U.S., it’s economy and it’s principle assets, the USD and Treasurys, has been diminished,” World Gold Council’s market strategist John Reade told CNBC.

The traditionally inverse relationship between Treasury yields and gold seems to have broken down. Usually, when yields are higher, bullion becomes less appealing given the higher opportunity cost of holding gold as it does not pay interest. 

Gold’s inflation-hedging quality is making it “special,” said Michael Ryan, lecturer at University of Waikato’s school of accounting, finance and economics.

Tariffs are expected to raise inflation in the U.S., which implies higher future interest rates, which in turn pressures Treasurys, Ryan said.

“Gold, however, is historically perceived as an inflation hedge, which may explain the preference for it—so it is perhaps gold’s perceived inflation-hedging properties that are making it ‘special,'” he added.

Another factor for the breakdown of the traditional relationship between gold and Treasurys would be the dwindling faith in America and the “U.S. exceptionalism” narrative, analysts told CNBC. 

“There is a waning trust in U.S. assets due to both economic and geopolitical uncertainties,” said Soni Kumari, a commodity strategist at ANZ.

Markets widely view Trump’s tariff war as a policy misstep, and gold’s perceived independence from any monetary and fiscal policy has boosted its appeal. 

“Unlike currencies or government bonds, gold carries no credit risk and is not tied to the economic or political trajectory of a single nation,” said Alexander Zumpfe, senior precious metals trader at Heraeus. This is especially pertinent in times when confidence in traditional financial instruments is wavering. 

Further adding to gold’s luster is the dulled appeal of the U.S. dollar. A weaker dollar generally makes commodities priced in the greenback, including gold, more attractive for holders of other currencies. 

Emerging market central banks, which have been underweight on gold compared to their developed market counterparts, have turned to the yellow metal and are likely to remain strong buyers as they diversify away from their dollar-based reserve holdings, said Eli Lee, Bank of Singapore’s chief investment strategist. 

The recent dollar sell-off has sparked discussions about a global de-dollarization, calling into question the attractiveness of the greenback as the world’s reserve currency.

Gold has been floated as a potential alternative main reserve currency several times.

“Countries realized that gold was a potential hedge against the U.S. freezing currency reserves for non-alignment with U.S. policy,” CBA’s Dhar said.

While the dollar sell-off has been beneficial to gold, Dhar said, it is still difficult to see a future with a material shift away from the greenback, given the costs of transporting and warehousing gold — bullion being a noninterest paying asset also limits its appeal.

Additionally, while there has been a bit of a revaluation of the U.S. Treasury’s safe haven status, it is still ultimately “really hard” to replace given how it is the “most liquid market in the world,” said Franklin Income Investors’ portfolio manager Todd Brighton.

The replacement of U.S. Treasurys as a safe haven is not happening anytime soon as we shift toward a more multi-polar world, he said.