Gold has always been a topic of fascination for investors, especially during times of economic uncertainty. In 2025, gold prices have surged to record highs, with spot prices reaching levels never seen before. This has led many to ask a critical question: Did gold really break out despite rising real yields? To answer this, we need to look at what drives gold prices, how real yields affect them, and what is happening in the global economy right now.
## Understanding Gold and Real Yields
Gold is often seen as a safe haven, a store of value when confidence in paper money, or fiat currencies, starts to fade. Unlike bonds or stocks, gold does not pay interest or dividends. This means its value is not directly tied to company profits or government bond payments. Instead, gold’s price is influenced by a mix of factors, including inflation expectations, currency values, geopolitical risks, and, importantly, real interest rates.
Real yields are the returns investors get on government bonds after accounting for inflation. When real yields are high, bonds become more attractive because they offer a better return after inflation. Since gold does not pay interest, higher real yields can make gold less appealing compared to bonds. This is why, traditionally, gold prices tend to move inversely to real yields[2]. When real yields go up, gold prices often go down, and vice versa.
## The 2025 Gold Surge: Breaking the Mold?
In 2025, something unusual happened. Gold prices broke out to new highs even as real yields were rising in some parts of the world, especially in the United States. This seems to go against the traditional relationship between gold and real yields. So, what changed?
First, let’s look at the numbers. Gold surged nearly 12% in September 2025 alone, hitting an all-time high of $3,859 per ounce, and was up about 47% year-to-date[1]. Other sources report gold prices rising 34%–38% year-to-date, with spot prices north of $3,500[7]. These are extraordinary gains, especially considering that real yields on U.S. Treasury bonds were not falling during this period.
## Why Did Gold Rise Despite Higher Real Yields?
Several factors explain why gold broke out even as real yields rose:
**Loss of Faith in Central Banks and Fiat Currencies**
One of the biggest drivers has been a loss of confidence in central banks, especially the Federal Reserve. When investors trust central banks to control inflation and manage the economy, they are more likely to hold bonds and other financial assets. But when that trust erodes, as it has in 2025, investors start looking for alternatives like gold[1].
The Federal Reserve began cutting interest rates in September 2024, paused for nine months, and then started cutting again in September 2025. Normally, rate cuts would lower yields and support gold. But this time, even as the Fed cut rates, long-term yields stayed high because markets feared inflation would remain stubborn and that fiscal policy (government spending and debt) might overwhelm the Fed’s efforts[1]. This is sometimes called “fiscal dominance,” where government borrowing and spending drive interest rates higher, regardless of what the central bank does.
**Policy Uncertainty and Fiscal Risks**
Investors are worried about large government deficits and the possibility that central banks might not be able to control inflation. This has led to a situation where even though the Fed is cutting rates, long-term yields are rising because investors demand more compensation for the risk of inflation and fiscal instability[1]. In this environment, gold becomes attractive not just as an inflation hedge, but as a hedge against policy mistakes and fiscal shocks[2].
**Central Bank Buying**
Central banks around the world have been big buyers of gold. In the second quarter of 2025, official purchases were around 166 tonnes, which is above the long-term average[2]. Some central banks, like China’s, have been reducing their holdings of U.S. Treasuries and increasing their gold reserves. This steady demand from central banks has provided a floor under gold prices, supporting the market even when other factors might have pushed prices lower[2].
**Geopolitical Tensions**
Ongoing conflicts, such as the war in Ukraine and tensions in the Middle East, have also boosted demand for gold as a safe haven[3]. When the world feels less stable, investors often turn to gold to protect their wealth.
**Changing Investor Sentiment**
High-profile investors like Ray Dalio, David Einhorn, and John Paulson have publicly endorsed gold as a key part of a diversified portfolio, suggesting allocations of 10–15%[2]. Their influence has helped normalize gold ownership among institutional and retail investors alike.
## Is the Traditional Relationship Broken?
The traditional inverse relationship between gold and real yields is not completely broken, but it has been strained. In normal times, rising real yields would put downward pressure on gold. But in 2025, other factors—loss of central bank credibility, fiscal risks, geopolitical tensions, and strong central bank buying—have overwhelmed the usual dynamics[1][2]. Gold is now being seen not just as an inflation hedge, but as a hedge against a broader range of risks, including policy mistakes and currency debasement.
## What Do the Experts Say?
Analysts are divided on what comes next. Some, like those at TD Securities, believe that the normal relationship between gold and real yields is being reestablished, and that further Fed rate cuts could push gold toward $4,000 or even higher[3]. Others warn that if central bank credibility continues to erode, or if geopolitical risks escalate, gold could go much higher. There are even extreme predictions, such as Peter Schiff’s view that gold could soar to $100,000 an ounce, though this is far outside the mainstream[6].
Most large banks forecast gold prices between $3,800 and $4,000 per ounce by the end of 2025, with strong demand from central banks expected to continue[6]. The World Bank predicts an average gold price increase of 35% in 2025, while Goldman Sachs has warned that gold could reach $5,000 if the Fed’s independence is compromised[3].
## Risks to Watch
While gold’s breakout is impressive, it is not without risks. If central banks regain credibility, if inflation is brought under control, or if geopolitical tensions ease, gold could face headwinds. Additionally, if real yields continue to rise and other assets become more attractive, some investors might reduce their gold holdings.
## The Bottom Line
Gold’s 2025 breakout is a story of multiple forces at work. Rising real yields would normally hurt gold, but this time, a loss of faith in central banks, fears of fiscal dominance, strong central bank buying, and geopolitical risks have all combined to push gold to new highs[1][2][3]. The traditional relationship between gold and real yields is still important, but it is being overshadowed by bigger, more systemic risks. For now, gold remains a go-to macro hedge for many investors, and its role in portfolios is likely to grow as long as these uncertainties persist.