Why is the price of gold rising so fast?

Reading time: 5 minutes

Gold and silver jumped more than 2% in one go this week. The reason isn’t the gold mines, but the U.S. Treasury. From now on, the U.S. Department of the Treasury will buy back twice as many long-term government bonds, and that shakes up the entire market. For you as a saver or investor, this is more than just news: it affects how much your money keeps its value. In this blog, you’ll read exactly what happened, why this makes gold more attractive, and what practical steps you can take yourself.

What happened in the bond market? 

Interest rates on U.S. government bonds have risen sharply recently. For 30-year loans, the rate reached 5.33%, the highest level since 2007. A higher interest rate means the U.S. government has to pay more to borrow money, and those costs are felt across the entire economy. 

To slow this down, the U.S. Treasury announced it would accelerate the repurchase of older, harder-to-trade government bonds. The amount per buyback round is increasing from $1.7 billion to $3.4 billion, as NU.nl also reported in an article about the intervention in the bond market. This extra demand immediately pushed down the yield on long-term government loans.

Why is the U.S. government intervening? 

Behind this intervention is a bigger problem: the U.S. national debt. It’s now approaching 40 trillion dollars. The interest payments that come with it are making up an increasingly large part of the government deficit. In the current fiscal year, it’s about 1.17 trillion dollars, 15% more than a year ago. 

In short: the U.S. government is trying to keep the interest on its own debt under control, because otherwise that interest would eat an even bigger hole in the budget.

What does this do to the gold and silver prices?

Gold is sensitive to interest rate developments and to the way a government handles its debt. When investors saw that the US was actively intervening to push down interest rates, many turned to gold as a safer place for their money. Just this month alone, the price of gold rose by 9%. At trading company Holland Gold, the demand for gold even doubled compared to last year.

This fits with a trend you might already know: central banks around the world have been buying extra gold for some time, partly to be less dependent on a single currency or a single debt country.

Short-term instead of long-term: what exactly changes?

There’s something else worth understanding. It’s still unclear how the US is exactly financing this extra buying, but an obvious route is: issuing more short-term government bonds, with a maturity of up to a year. 

In practice, this means long-term debt is being swapped for short-term debt. It sounds technical, but the effect is simple: short-term debt needs to be borrowed more often. If interest rates rise in the future, the US government will feel it faster in its wallet. So the debt burden becomes more sensitive to interest rate fluctuations, not less.

What do you notice as a saver? 

You don't have to invest in American bonds to feel this news. Turmoil around debt and interest rates often affects the broader economy. A few things to keep in mind: 

• Your savings aren't separate from the global economy. 

Fluctuating interest rates and inflation partly determine how much your savings really keep their value. 

• Price increases rarely come alone. 

Uncertainty about debt and interest often goes hand in hand with rising costs for everyday groceries. You can read more about this in "Global food prices rise again: what does this mean for your groceries?" 

• Diversification is still your best friend. 

No one can predict if gold will be higher in a month. So don't put all your eggs in one basket; look at your overall financial picture.

Frequently Asked Questions

Is this a good time to buy gold?

That depends on your own situation and goals. Gold has risen sharply this month, but that doesn't say anything about the longer-term price.

What do I notice as a saver about US interest rate decisions?

Directly, not much, but unrest in large bond markets often affects global interest rates, exchange rates, and commodity prices like gold and silver. That can indirectly impact your savings interest or investments.

Why does the US choose short-term rather than long-term loans?

Short-term loans are cheaper to get right now because the interest on them is lower. The risk is that the government has to refinance this debt more often, causing future interest rate rises to hit faster.

Does gold always go up when interest rates rise? 

Not necessarily. Gold mainly reacts to uncertainty and confidence in government policy. Sometimes gold even rises when interest rates fall or when a government takes active measures, like in the US right now. 

Get started with your financial future 

Big moves in the global money markets may feel far away, but the impact on your wallet is closer than you think. Take a moment today to review your savings or investment plan. 

• Check out all blogs about money management for more background. 
• Or explore the money management webshop category for practical tools you can use right away. 



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