Ole Hansen, Head of Commodity Strategy at Saxo Bank, says gold's resilience is being severely tested. Gold broke below the $4,230 mark, and combined with surging US Treasury yields and a stronger dollar, this triggered a fresh wave of selling; ETF inflows are currently the only key offsetting force for gold prices.

In his latest precious metals analysis report, Hansen said this week's early gold price action shows that, with bond yields at extremely high levels, gold's ability to sustain investment demand is facing an increasingly tough test.

"The weakness in gold stems from multiple factors: surging US Treasury yields, a stronger dollar, and technical selling pressure after support levels were broken," he wrote. "The pressure from interest rates has become hard to ignore. The US 10-year real yield has climbed to a nearly 18-year high, approaching 2.85%; the short-term rate market is currently pricing in three more 25 basis point rate hikes from the Fed by next April."

Hansen noted that, based on historical patterns, a sharp rise in the opportunity cost of holding a non-yielding asset like gold typically creates a major headwind. "However, the charts reveal a notable divergence: even as real yields continue to rise, gold ETF holdings are still recovering," he said. "The core question is whether this buying can be sustained. Therefore, the market will keep a close eye on ETF fund flows, especially these investors, who are less sensitive to interest rates and more worried about the financial risks from persistently high borrowing costs."

He mentioned that high yields suppress gold prices through traditional valuation logic, but they also intensify fiscal pressure and debt servicing costs, which could boost long-term allocation demand for gold as a hedge against financial and sovereign risks. "But tight funding will become a short-term bearish factor." Hansen said that as rising interest rates push up refinancing risk, weaker segments of the US corporate credit system are already showing stress. CCC-rated bond spreads have widened sharply, and their spread versus B-rated bonds is at levels previously seen only during significant economic slowdowns. Overall, the spread on US high-yield corporate debt relative to Treasuries widened again by 12 basis points on Friday to 294 basis points, the highest since April.

Hansen warned that if these pressures intensify further, investors will sell their most liquid assets to raise cash in order to meet margin calls and other liquidity needs. "The gold market has good depth and is highly liquid, so in this environment it naturally becomes the first choice for liquidation."

"This creates a key short-term paradox: the fiscal and financial pressures generated by high yields strengthen the long-term investment case for gold; but when liquidity tightens sharply, the market sells gold first, weighing on prices."

"Currently, the rapid rise in real yields combined with Monday's technical breakdown means gold's resilience is undergoing its toughest test yet."