Gold retains key reserve status despite surging bond yields, central bankers say

By Polina Devitt

SORRENTO, Italy, Oct 5 (Reuters) - Gold remains a strategic reserve asset as concerns over rising government debt and geopolitical instability boost its appeal as a haven from risk, two central bankers said on Monday, even after this year's surge in bond yields.

Gold prices typically retreat as yields rise, boosting the opportunity cost of holding non-interest bearing assets.

This year however, while prices are indeed down around 4% as US Treasury yields have jumped to multi-decade peaks, they have remained relatively well-supported by central bank buying and safe-haven demand, keeping prices above $4,000, analysts say.

"Gold is a safe haven asset, probably the safe haven asset, as proven by its performance over time and across a broad range of crises," Sergio Nicoletti Altimari, deputy governor of the Bank of Italy, told the London Bullion Market Association's annual conference in Sorrento, Italy.

"This role is particularly relevant today in an environment of high geopolitical risk and concerns about economic fragmentation."

Bundesbank President Joachim Nagel said rising yields were increasing the relative attractiveness of bonds among reserve asset managers.

However, the case for diversification into gold remains significant given continued geopolitical stress and the credit risk associated with high debt levels, he added.

ITALIAN CENTRAL BANKER FLAGS STRUCTURAL SHIFT IN GOLD MARKET

While gold demand from central banks is expected to slow by 15% year-on-year to 720 metric tons in 2026, according to consultancy Metals Focus's June forecast, it is slated to hold above pre-2022 levels.

Altimari said the gold market had undergone a structural shift since 2022, driven by central-bank purchases in emerging economies.

He said demand had also been supported by concerns over high public debt and fiscal expansion, weakening gold's traditional inverse relationship with real bond yields.

"These forces became particularly evident last year and early this year when the traditional relationship between gold and real yields weakened significantly," he said.

The gold market has experienced profound shifts in its demand structure and pricing framework in recent years, Shanghai Gold Exchange vice president Zeng Hui told the conference.

In top gold consumer China, the market is increasingly being driven by investment demand and institutional investors, with bar-and-coin purchases surpassing jewellery consumption for the first time in 2025, he said.

(Reporting by Polina Devitt; Editing by Jan Harvey)