Market Overview: Gold Benefits from Turmoil in Bond Markets

The United States is losing control over its bond market, Koen Lauwers writes in his biweekly Market Overview; and gold is benefiting from it.

Bond markets are becoming increasingly unsettled, and this is playing into the hands of gold and silver. Both precious metals rose sharply after the US Treasury Department announced that over the coming months it would at least double its purchases of government bonds with maturities between 10 and 30 years.

This creates (artificial) demand for long-dated bonds, which will push their prices higher and therefore drive their yields lower. Pushing down interest rates is exactly what Scott Bessent, the US Treasury Secretary, is aiming for.

Long-term interest rates have risen sharply in recent months, creating several problems. Not least for the government itself, which is seeing the interest burden on its debt increase, just as federal government debt has crossed the $40 trillion ($40,000 billion) mark.

Chart: gold price over 1 year with 50-day and 200-day averages (Source: StockCharts)

The yield on 30-year government bonds reached 5.34% earlier this week, its highest level since 2007. This yield is also a benchmark for mortgage loans, and when these become more expensive, it creates pressure in the housing market. Companies and households also have to pay more when they want to borrow.

The announcement of additional bond purchases, which will begin on September 9, had the desired effect, with interest rates falling. The biggest move, however, was in the dollar, which lost significant ground. The dollar index (DXY) even fell to its lowest level in more than three months. This was a tailwind for gold, which traded above the $4,500 mark for the first time since May. Silver followed the same upward trend.

After almost 8 months of 2026, gold’s return measured from the start of the year is back in positive territory at 4%. In euros, this rises to 4.5%. Silver has not yet reached that point and is still down 8% (-7.5% in euros). Gold is now once again trading around the level of its 200-day average. This could act as resistance in the short term (the weekly close will be important here). For silver, this average stands at $71, or around 5% above the current price.

Chart: USD Index (DXY) over 1 year (Source: StockCharts)

It increasingly appears that the United States is losing control over its bond market. The announcement of the additional bond purchases comes just a few weeks after the widely discussed intervention in the currency markets.

Recently, the US supported the Japanese yen with large-scale support purchases after the Japanese currency repeatedly hit new lows against the dollar. Remarkably, the US did not sell dollars to support the yen, but instead drew on its euro reserves. This was done to avoid disrupting the US bond markets even further than they already were.

The intervention was not carried out to please Japan, but rather out of self-interest. The US wanted to prevent the Japanese central bank from selling large amounts of its US government bonds in order to defend its own currency. This would have pushed bond prices lower and interest rates higher. This had to be avoided at all costs. Aside from the Federal Reserve itself, Japan holds the largest stock of US government bonds.

Following the July inflation report, the chances that the Federal Reserve will raise its policy rate on September 16 have fallen again. The Consumer Price Index (CPI) rose by 0.1% month-on-month and 3.4% year-on-year. Core inflation (core CPI), excluding food and energy, increased by 0.2% and 2.5% respectively. These figures are above the 2% inflation target, but below June’s levels.

According to the CME FedWatch Tool, 65% now expect interest rates to remain unchanged on September 16. The remaining 35% expect an increase of 25 basis points (0.25%). For the subsequent meeting on October 28, there is still a small majority of 52% expecting rates to remain unchanged.