In the 1970s, a period characterized by stagflation—that is, the coexistence of inflation and economic stagnation—the price of gold rose from $35–40 to $850 per ounce.This fact is often cited to illustrate the relationship between gold and inflation.
Many therefore expected gold to gain ground following the resurgence of inflation in the wake of the war in the Middle East between Iran and the U.S. They were proven wrong.
However, it would be risky to conclude that inflation plays no role at all.
Simply put, something else may be playing a bigger role and is reflected in central banks’ gold purchases. Confidence in a financial system where debt is growing faster than income and interest payments are skyrocketing.
It is worth noting that central banks purchased 244 tons more gold than they sold in the first quarter of 2026. They could have liquidated part of their gold reserves but chose not to.
A prime example is the Central Bank of Turkey. The latter needed liquidity but chose to liquidate most of the U.S. Treasury bonds it held rather than touch its gold.
It likely preferred to retain its gold holdings and liquidate the U.S. Treasuries for reasons we can only speculate on. It probably views gold as having no counterparty risk and, at the same time, as a strategic reserve asset.
In this sense, a segment of the market views gold through a different lens. It views it through the prism of debt. Historically, rising real yields (nominal yield minus inflation) would have prevented gold from rising.
And yet, there have been periods in recent years when gold and long-term interest rates rose together. The same was observed in the 1970s, when gold posted gains even as interest rates rose. The relationship changed when Volcker’s Fed raised real interest rates to the 4%–6% range. Today, the real yield on 10-year bonds is below 2% (10-yr TIPS) and is well below the range mentioned above. This reinforces the impression that real interest rates are not yet an obstacle to gold’s recovery.
All of this tells us something more. When central banks increase their gold reserves while government debt rises, they are signaling that they want to avoid fiscal uncertainty.
Therefore, gold behaves less as a hedge against inflation and more as a hedge against rising debt.