Gold's Dilemma: Yields Rise, Dollar Strengthens – Is Now the Time to Exit or Stay?

The year 2025 has been a paradox for gold. Traditionally, the metal thrives when U.S. Treasury yields fall and the dollar weakens. Yet, as of late 2025, gold prices have surged to record highs above $4,000 per ounce despite rising yields and a resilient U.S. dollar. This apparent contradiction has left investors grappling with a critical question: Should they exit gold amid tightening monetary conditions or double down on its evolving role as a strategic reserve?

The Shifting Dynamics of Gold, Yields, and the Dollar

Historically, gold and the U.S. Dollar Index (DXY) have maintained an inverse relationship. A weaker dollar typically boosts gold's appeal as an alternative store of value. However, in Q4 2025, this dynamic has softened. The 60-day rolling correlation between gold and the DXY has settled at approximately -0.45, indicating a weaker inverse link compared to previous years. Simultaneously, gold has broken from its traditional inverse relationship with Treasury yields. Instead of falling as yields rise, gold has moved in tandem with them, reflecting a broader erosion of confidence in U.S. government bonds as a safe-haven asset.

This shift is driven by structural factors. Elevated Treasury yields, fueled by concerns over fiscal sustainability and inflationary pressures, have not deterred gold buyers. Central banks, particularly in emerging markets, have increased gold purchases to diversify reserves and hedge against dollar volatility. Meanwhile, investors are redefining gold's role in portfolios, viewing it not just as a hedge against inflation but as a counterbalance to geopolitical risks and potential "fat tail" events like deep dollar weakness.

Macroeconomic Drivers: De-Dollarization and Monetary Easing

The U.S. dollar's dominance has faced headwinds in 2025. Trade tensions, credit rating downgrades, and a global shift toward multi-currency reserve systems have accelerated de-dollarization. As the dollar weakens, gold gains traction as a non-sovereign asset. Federal Reserve policy has further bolstered gold's appeal. Rate cuts and monetary easing in late 2025 have amplified expectations of inflation, driving demand for real assets like gold.

Yet, the dollar's strength in certain periods has created short-term volatility for gold. A stronger dollar typically makes gold more expensive for non-U.S. buyers, dampening demand. However, gold's resilience in 2025 suggests that structural demand-particularly from central banks-has outweighed these cyclical pressures.

Portfolio Reallocation: The Rise of the 60/20/20 Model

The traditional 60/40 portfolio, which allocates 60% to equities and 40% to bonds, has struggled in 2025 as bonds have lost their safe-haven status. In response, institutional investors are adopting a new framework: the 60/20/20 model. This strategy allocates 20% to gold, replacing part of the bond allocation, to hedge against inflation and dollar depreciation. Gold's low correlation with equities and its dual role as both a store of value and a strategic reserve make it an attractive diversifier.

Innovations in capital-efficient strategies, such as gold-miner ETFs and hybrid portfolios combining gold with equities, have also gained traction. These approaches allow investors to access gold's inflation-hedging properties without sacrificing growth potential. For example, gold-mining equities offer exposure to both the price of gold and the operational performance of mining companies, providing a leveraged bet on the metal's long-term trajectory.

Investor Behavior: From Hesitation to Strategic Adoption

Investor behavior in late 2025 reflects a growing acceptance of gold as a core portfolio component. Western demand for gold ETFs has rebounded, while central banks in Asia and the Middle East have added over 500 tons of gold to their reserves this year. This trend is unlikely to reverse in 2026, as geopolitical tensions and fiscal imbalances persist.

However, the decision to stay in or exit gold depends on an investor's risk profile. For those prioritizing short-term gains, rising yields and a stronger dollar may temporarily pressure gold prices. Yet, for long-term investors, the structural drivers-de-dollarization, central bank demand, and gold's role as a hedge against systemic risks-suggest that the metal remains a compelling asset.

Conclusion: A Case for Strategic Patience

Gold's 2025 performance challenges conventional wisdom but underscores its evolving role in a fragmented global economy. While rising yields and a stronger dollar may create near-term volatility, the macroeconomic fundamentals-fiscal uncertainty, de-dollarization, and gold's dual utility as a hedge and reserve asset-favor a long-term holding. Investors who exit gold now risk missing out on its potential to outperform traditional safe havens in a world of escalating geopolitical and economic risks.

For those seeking to reallocate, the 60/20/20 model offers a balanced approach, leveraging gold's diversification benefits while maintaining exposure to growth. As 2026 unfolds, the dilemma may not be whether to stay or exit gold, but how to integrate it more strategically into a resilient portfolio.