The Last Time Real Yields Were This High, Gold Fell 30%. Then It Soared.

Written by Bryan Lutz, Editor at Dollarcollapse.com:

This week, the 10-year real yield hit 2.63%. That’s the highest reading since November 2008.

The last time real yields climbed this high, gold fell 30%.

Then it soared…

To see why that matters now, start with what a real yield is.

A real yield is what a 10-year Treasury pays you after inflation. On September 22, the regular 10-year Treasury paid 4.96%. Bond traders expect inflation to average about 2.33% a year over the next decade. Take the inflation out of the yield and you’re left with 2.63%. That’s the real yield.

Gold can’t compete with that on income. It pays no coupon and no dividend. So, when a safe bond pays 2.63% on top of inflation, every year you hold gold instead costs you that 2.63%. So when real yields jump, gold usually takes a hit.

In 2008, it took a big one.

Gold peaked at $1,003 on March 18, 2008. The real yield that day was 1.08%. Over the next eight months, the real yield nearly tripled, to 3.15%. As the financial crisis spread, investors sold everything they could for cash, TIPS included, and gold went down with the rest. By November 13, gold had fallen 30% to $705.

That was the bottom. And it came before the bond market turned.

Real yields kept climbing for eight more days and didn’t peak until November 21. By then, gold had already stopped falling.

Four days later, on November 25, the Federal Reserve showed its hand. It announced it would buy up to $600 billion of mortgage bonds and debt from Fannie Mae, Freddie Mac and the Federal Home Loan Banks. That was the first round of what came to be called quantitative easing. The Fed was now creating money to hold rates down, and the force that had pushed gold lower was about to run in reverse.

Here’s the whole run, from the 2008 selloff to the 2011 peak:

A year after the low, gold traded at $1,116. By August 2011 it hit $1,889, up 168% from the November 2008 bottom.

Now look at this year.

Gold peaked at $5,318 on January 29, with the real yield at 1.89%. The real yield has climbed ever since, to 2.63% this week. Gold fell 25% to $3,992 by July 16, and it sits at $4,310 today, 19% below the peak.

Mining.com described the pressure on September 1:

Gold price erases 2026 gains as Fed hike bets climb to 70%, silver slides

“Gold fell for a third straight session on Tuesday, sliding to a two-week low as a global bond selloff drove yields to their highest since 2008… Rising yields and a firmer dollar are both headwinds for a metal that pays no income.”

Here’s the 2008 drop next to this year’s, with both set to 100 on the day of the peak:

The two paths move in step for the first five months. In 2008, gold was back at its old high by February 2009.

In November 2008, consumer prices were up 1.1% from a year earlier, and the Fed had already cut its target rate to 1%. This year, inflation is 3.7%, and on September 16 the Fed raised its target range to 3.75% to 4%. Real yields are climbing for a different reason this time, and that could change how the story ends.

But the 2008 turn came when Washington stepped in to push rates down. With federal debt at $39.1 trillion in the first quarter of this year, a 5% 10-year yield gets expensive fast.

In 2008, gold took eleven months to reach the old high. It didn’t happen in a straight line, but it does give us one historical pattern.

You may know this already but, gold bought at the November 2008 low was worth 168% more by August 2011…