Gold has soared to near historical highs! The U.S. Treasury yield curve is steepening in a bull run, which may also be favorable for Bitcoin.

The price of gold (XAU) has recently surged, breaking through $3,480 per ounce, reaching a new high since April, just a step away from the historical peak. The key driving force behind this rally is a often-overlooked bond market signal—the steepening of the U.S. Treasury yield curve bull market. This bond market dynamic not only drops the opportunity cost of holding gold but may also bring potential favourable information for Bitcoin (BTC).

The steepening of the yield curve bull run: A powerful catalyst for gold

According to TradingView data, gold has risen more than 5% over the past ten days, approaching the historical high of $3,499 set on April 22.

At the same time, the US Treasury yield curve has shown a significant steepening:

10-year and 2-year interest rate spread: expanded to 61 basis points, the highest since January 2022

30-year and 2-year interest rate spread: reached 1.30%, the largest since November 2021.

This "bull run steepening" is mainly driven by the rapid drop in short-end interest rates:

2-year interest rate: dropped 33 basis points in August to 3.62%

10-Year Yield: drop 14 basis points to 4.23%

Ole Hansen, the commodity strategy manager at Saxo Bank, pointed out that the decline in short-term interest rates has reduced the opportunity cost of holding non-yielding assets such as gold, making it particularly attractive for physical asset managers.

The Resonance Effect of Gold and Bitcoin as 'Non-yielding Assets'

Gold and Bitcoin are both non-yielding assets, with their value primarily derived from scarcity and market demand. When short-term interest rates drop, the opportunity cost of holding such assets decreases, making them more attractive to investors.

Gold: As a hedge against inflation and a safe-haven asset, it benefits from the drop in short-term interest rates and the resilience of long-term interest rates.

Bitcoin: With attributes of technology stocks and the positioning of "digital gold", it may benefit simultaneously.

Analysts at ING Group have pointed out that the current low interest rate environment may exacerbate inflationary pressures, further driving investors to seek inflation hedging tools, with both gold and Bitcoin thus receiving support.

Inflation expectations and policy risks support precious metals and crypto assets

Hansen added that the resilience of the 10-year U.S. Treasury yield partly stems from the combination of the inflation breakeven point (around 2.45%) and the real yield, reflecting investors' demands for higher compensation for fiscal and policy risks.

This kind of environment is usually favourable information:

Gold: A hedge against inflation and policy uncertainty

Bitcoin: As a decentralized asset, it attracts funds seeking a safe haven.

Historical Experience: The Implications of a Bull Run Steepening on Asset Performance

According to analysis by Advisor Perspectives, historically during periods of long-term steepening of the yield curve:

Gold and Gold Mining Stocks: Best Performers

Stock market: often performs poorly

This means that if the current bond market trend continues, gold and Bitcoin may see inflows of capital, while the stock market may come under pressure.

Conclusion

Gold is benefiting from the steepening of the U.S. Treasury yield curve in a bull run, as the decline in short-term interest rates reduces the cost of holding non-yielding assets, providing strong support for gold prices. Due to the similarity in asset properties between Bitcoin and gold, BTC may also ride this wave of market sentiment and become a potential beneficiary.

In the coming weeks, investors should closely monitor the trends of US Treasury yields, inflation data, and market risk aversion, as these factors will simultaneously affect the short to medium-term trends of gold and Bitcoin.