The rebound suggests markets may have overreacted to the CPI print, with the post-data selloff in Treasuries now looking stretched. For gold, the key level is less a price than a relationship: as long as 10-year yields keep drifting lower, bullion has a tailwind, but the metal remains exposed to any revival in Fed hike pricing. A weaker US dollar alongside lower yields would strengthen the move, so the dollar index is worth watching as confirmation. The US session will show whether the rally has follow-through.
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Gold and Treasuries are rallying on the same idea: China may not be dumping US debt after all, just keeping it somewhere else.
Summary:
Gold has climbed around $40 during the Asian session
10-year Treasury yields are more than 20bp below their high after Wednesday’s hotter-than-expected CPI data
A Bloomberg report suggests China may be holding US debt through non-US custodians, inflating Canada’s holdings to nearly $600 billion
If confirmed, that would mean foreign demand for Treasuries is steadier than official data suggest, supporting bonds
Lower yields reduce the opportunity cost of holding gold, helping the metal recover
Iran war and AI-debt worries are also likely adding to safe-haven demand
Gold has climbed around $40 during the Asian session, while yields on 10-year US Treasuries have fallen more than 20 basis points from the high they reached after Wednesday’s hotter-than-expected US inflation data. The two moves appear closely linked, and a Bloomberg report on China’s possible hidden holdings of US debt looks to be adding fuel to both.
The yield spike came after September’s Consumer Price Index showed headline inflation at 3.7% and core at 2.6%, both slightly above forecasts, prompting Citi to call for a Federal Reserve rate hike in December. Since that high, Treasuries have recovered much of the lost ground.
Part of the support appears to come from a Bloomberg report that Canada’s holdings of US debt securities have surged to nearly $600 billion despite a tariff war with Washington. Some investors suspect China is behind the increase, moving US securities to custodian banks outside the United States and masking its true role in financing US deficits. The claims are unconfirmed.
The read-across for bonds is straightforward. China’s officially reported Treasury holdings have been falling, feeding concern that one of the biggest foreign buyers was stepping back just as US borrowing is heavy. If China is instead shifting where it holds its bonds rather than selling them, foreign demand for Treasuries may be steadier than the headline data suggest. That eases one of the worries that had been pushing yields higher.
Gold is benefiting from the same move. Bullion pays no interest, so lower Treasury yields reduce the return investors give up by holding it, and the metal tends to rise when yields fall. The pullback in yields from their post-CPI high has therefore given gold room to recover.
The China report is unlikely to be the only factor. Rising geopolitical stresses involving Iran and unease over heavy borrowing by AI infrastructure companies have also encouraged demand for safe assets … al;though this has not been much of a factor during Trump’s war so far. The link between yields and gold looks the clearest driver, though, so the next test is whether yields can hold their decline. A renewed rise in Treasury yields, perhaps on firmer Fed hike expectations, would likely put gold back under pressure.
This article was written by Eamonn Sheridan at investinglive.com.
