Gold prices and U.S. Treasury yields rise simultaneously: How to understand the credit hedging pricing model of gold?

　　“The simultaneous rise of gold prices and US Treasury yields” doesn’t hold true every week; rather, it's a phenomenon that reflects a jointly elevated price center over the past year. After a hawkish speech from Waller last week, gold sharply retreated, the dollar and short-end rates rose, indicating that the traditional opportunity cost framework is still effective. However, when the rise in long-term rates is mainly driven by term premium, increased bond supply, and fiscal risk compensation, gold can gain a credit-hedging premium. Understanding the shift between these two types of rates is more important than simply judging “rates up, gold down.”

　　

　　Last week, gold was strong at first but weakened later. On August 25, London spot gold once surged above $4,650/oz, with markets mainly trading on US debt surpassing $40 trillion, the US Treasury’s plan to expand long-end bond repo operations, and concerns over dollar credit. On August 28, Waller emphasized at Jackson Hole that if core inflation fails to clearly and rapidly return to target, the Federal Reserve still “has work to do.” The market raised the probability of a rate hike in September from about 36% to 58%, with 2-year Treasury yields rising about 11 basis points in a single day and 10-year yields up about 5 basis points. The dollar index reached near 99.7, while London spot gold fell about 3.2% to around $4,454/oz, ending its previous consecutive weekly gains.

　　Taking the full week into account, 10-year and 30-year yields fell back from 4.74% and 5.27% on August 21 to 4.73% and 5.22% on August 28, with gold futures dropping about 3.2% for the week. Thus, the “simultaneous strength” of gold and Treasury yields was not the theme for the week as a whole. The real synchronization occurred during August 17–21 and in the core price trends over the past year; by Friday, the market returned to the traditional “dollar and policy rates up, gold down” trade.

　　The liquidity situation also amplified this reversal. As of August 25, managed funds’ net long positions on COMEX gold were about 151,300 contracts, up about 5,400 contracts from the previous week, but this data did not yet cover Friday's sell-off; SPDR gold holdings fell from 1047.21 tons on August 21 to 1042.36 tons on August 28, down 4.85 tons during the week. High levels of open interest and marginal ETF outflows made the hawkish impact more likely to cause concentrated profit-taking. This proves that gold has not become permanently “desensitized” to rates and the dollar; credit hedging is merely a secondary pricing axis layered atop the traditional framework.

　　

　　“US Treasury yield rises” actually contain at least two different economic implications.

　　The first is a rise in policy or real interest rates: resilience in the economy, sticky inflation, or a hawkish Fed pushes short-end rates and the dollar higher, raising the opportunity cost of holding non-interest-bearing gold, which usually suppresses gold prices. The market reaction after Waller's speech last week is a classic example of this mechanism.

　　The second is an increase in term premium or credit compensation: when investors face greater long-term bond supply, higher inflation uncertainty, and weaker fiscal sustainability, they demand extra returns for holding long-dated Treasuries. In this scenario, a rise in long-end yields does not signal that US assets are “safer”—rather, it shows the market requires greater compensation for long-term purchasing power and policy constraints. Gold, as a non-sovereign credit asset, may then rise in tandem with long-term yields.

　　

　　As of August 27, US federal debt totaled about $40.08 trillion. What's more noteworthy than the round number is the confluence of high debt, high rates, and sustained financing needs: refinancing costs rise and longer-term bond supply increases, meaning investors require more term premium. “Risk-free rates” are still the benchmark of the financial system, but the fiscal and inflation risk premiums embedded in them are rising.

　　

　　On August 19, the US Treasury announced that starting September 9, the single transaction cap for liquidity-supporting repos in 10–20 and 20–30 year nominal Treasuries will be raised from $2 billion to at least $4 billion, running until November 4. This move will improve liquidity and market making conditions for non-new issue long-term Treasuries, but it is not quantitative easing: it will not create base money, nor will it directly reduce the federal debt. The more accurate interpretation is that policymakers are paying greater attention to the liquidity and demand structure at the long end, rather than “the Treasury directly supporting rates.”

　　What gold is hedging against is not an imminent explicit US Treasury default, but rather the possible dilution of real purchasing power in a high-debt environment: higher inflation, more prolonged financial repression, weaker real returns, or policy constraints imposed to maintain debt sustainability. When yields rise due to these risks, higher nominal rates do not necessarily increase the real safety of dollar assets, and gold’s credit hedging value may be repriced.

　　The US Treasury’s planned long-end repo expansion is liquidity support, not QE; credit hedge pricing is about hedging long-term purchasing power and policy constraints, not an outright Treasury default.

　　

　　Term premium explains why gold may rise with long-term yields, and central bank gold buying explains why high real rates are not enough to push gold back to previous trading ranges. According to the World Gold Council, global central banks’ net gold purchases in Q2 2026 reached 289 tons, up 62% year-on-year and nearly five times the revised Q1 total of 57 tons; however, the H1 total of about 345 tons is the lowest since 2022 for the same period, showing that buying continues, but not on a linear pace. From 2022–2024, central banks net bought over 1,000 tons for three consecutive years, with 2025 falling back to 863 tons but still at historically high levels.

　　This type of demand is different from ETF trading. Central bank buying is mostly about reserve safety, asset diversification, crisis performance, and geopolitical risk, and is not sensitive to weekly real rate fluctuations. In a 2026 survey of central banks, 89% of respondents expected global central bank gold reserves to keep rising in the next year, and 45% expected their own institutions to buy more. Such long-term official buying has embedded a more stable “reserve safety premium” in gold prices.

　　It is important not to oversimplify this trend as the “dollar being rapidly replaced.” IMF data show that the dollar’s share of allocated global FX reserves rose from 56.42% in Q4 2025 to 57.13% in Q1 2026, showing that reserve structure adjustments are gradual and prone to two-way fluctuations. More rigorously: central banks are not collectively abandoning the dollar, but are adding an asset that doesn’t rely on any sovereign credit outside the dollar system.

　　

　　Only by considering these three forces together can we explain why gold can both fall sharply after hawkish comments and also maintain high price centers during high real rates environments.

　　

　　

Real interest rates, the dollar index, Federal Reserve expectations, and ETF flows determine short-term direction. Last week, after Waller’s speech, the trading layer became significantly bearish.

　　

Debt size, fiscal deficit, net interest burden, and term premium determine whether gold can obtain a credit hedge premium. This explains the synchronized rise in gold prices and long-term yields over the last year.

　　

Central bank gold buying, reserve diversification, and geopolitical risks determine the long-term price center. Changes here are slow, but provide lasting support for gold’s lower bound.

　　

　　September 4 at 20:30 (UTC+8) NFP: Watch for the degree of labor market cooling and dollar/real rate reactions.

　　From September 9, long-end repo expansion: Focus on whether yields and term premium can retreat.

　　September 10 PPI, September 11 CPI (both at 20:30 UTC+8): Monitor core inflation and the energy component.

　　September 17 at 02:00 (UTC+8) FOMC: Watch for rate decisions, economic forecasts, dot plot, and policy communication.

　　

　　Last week’s pullback shows gold can still be suppressed in the short term by rate hike expectations, the dollar, and real rates; yet the expansion of US debt, high term premiums, and central bank gold buying were not changed by a single hawkish speech. For investors, the key is not whether gold has completely broken free from rates, but identifying which pricing layer is currently dominant.

　　If upcoming labor and inflation data soften and rate hike expectations fall, short-term trading layer pressures could ease, and gold may return to trading on credit and reserve logic; if inflation stays strong, gold could keep oscillating at high levels. In terms of allocation, it’s best to avoid overly concentrated, event-driven trades keyed to a single policy meeting—consider smoothing volatility through staged or systematic investments and leverage gold’s diversification and credit hedge role in portfolios.

Editor: Zhu Henan